| Game: #61 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Public goods provision. |
| Objective: | Illustrate why the government provides public goods and subsidizes other goods that generate positive externalities |
| Reference and contact: | O'Sullivan, Arthur and Steven N. Sheffrin. Economics. Upper Saddle River, New Jersey: Prentice Hall, 1997 (p. 289); arthur.osullivan@orst.edu; smsheffrin@ucdavis.edu |
| Abstract: | Large classes are divided into small groups of students who have the opportunity to support public education through their voluntary contributions. Each group begins play with a $30 balance. Student groups must decide how much to contribute to the public good. Contributions may not exceed $10 per period. Each dollar contributed to the public good reduces the government's expenditures on welfare and criminal justice by $3, so the government enjoys budget savings equal to three times the sum of contributions. The government promises to refund the savings equally among all citizens. The experiment is run for five periods. |
| Class size: | Any size. |
| Time: | 30 minutes. |
| Variations: | None indicated |
| See also: | Public goods games |
| Game: #62 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Voluntary contributions experiment |
| Objective: | Illustrate the nature of public goods and free-riding. |
| Reference and contact: | Parker, Jeffery. Economics 201: Instructor's Laboratory Manual. Reed College, November 1993; parker@reed.edu |
| Abstract: | Virtually identical to Brock (1991), Yandell (1999a), Delemeester and Neral (1995). |
| Class size: | Any number. |
| Time: | One class period for experiment and discussion. |
| Variations: | Introduce declining marginal returns to both the private and public good which could make both the individual and social optimums interior solutions. Introduce a universal tax which is subject to a majority vote by all participants. |
| See also: | Public goods games |
| Game: #63 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Voluntary contributions experiment |
| Objective: | Illustrate the nature of public goods and free-riding. |
| Reference and contact: | Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #10); yandell@acusd.edu |
| Abstract: | Virtually identical to Game #59 |
| Class size: | Any number. |
| Time: | One class period for experiment and discussion. |
| Variations: | Introduce declining marginal returns to both the private and public good which could make both the individual and social optimums interior solutions. Introduce a universal tax which is subject to a majority vote by all participants. |
| See also: | Public goods games |
| Game: #64 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Product quality experiment |
| Objective: | To examine the impact of product quality differences on allocative efficiency. |
| Reference and contact: | Parker, Jeffery. Economics 201: Instructor's Laboratory Manual. Reed College, November 1993; parker@reed.edu |
| Abstract: | Students are divided into equal numbers of buyers and sellers for a three-part double oral auction. Each buyer is given buyer values for two goods: a low value for a ‘standard’ good and a higher value for a ‘premium’ good. Each seller is given seller costs for two goods: a low cost for the standard good and a higher cost for the premium good. Each trader can only buy or sell one unit of either good in each period. In the first part of the DOA the greatest gains from trade occur only if the premium good is traded. In the second part, the greatest gains from trade occur only if the standard good is traded. In the third part, the greatest gains from trade occur only if some of the standard and some of the premium goods are traded. |
| Class size: | 10 to 30 students |
| Time: | One class period |
| Variations: | With larger classes, additional levels of product quality can be introduced. Asymmetric information could be introduced by having the product quality revealed only after the buyer has purchased the product. Also, one could introduce a ‘government’ quality standard in which low quality products are prohibited from trading. |
| See also: | Information games |
| Game: #65 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Imperfect/asymmetric information |
| Objective: | To illustrate the lemons problem involving asymmetric information in a market. |
| Reference and contact: | O'Sullivan, Arthur and Steven N. Sheffrin. Economics. Upper Saddle River, New Jersey: Prentice Hall, 1997 (pp. 327-328); arthur.osullivan@orst.edu; smsheffrin@ucdavis.edu |
| Abstract: | Students play the role of used-car buyers. The market contains plums (high-quality cars) and lemons (low-quality cars). High-quality cars are worth $1200 and low-quality cars are worth $400. Car buyers make a price offer and then roll a pair of dice to determine which type of car they receive. In general, to get a plum one must roll a large number. The instructor uses a formula (based on the number of lemons and plums in the market) to determine whether the buyer has rolled a large enough number for a plum; otherwise, the buyer gets a lemon. Students calculate their earnings based on the difference between the value of the car and the amount offered for it. Play is for three to five periods. |
| Class size: | Any size |
| Time: | 30 minutes. |
| Variations: | None indicated |
| See also: | Information games |
| Game: #66 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Adverse selection and market failure |
| Objective: | To illustrate how information asymmetries can lead to adverse selection |
| Reference and contact: | Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #9); yandell@acusd.edu |
| Abstract: | Students are assigned the roles of used-car owners and dealers who participate in a posted price market as sellers and buyers, respectively. Each car owner (seller) has one used car to sell and knows whether the car is a lemon or not. Each seller is given a minimum selling (reservation) price for their car. Sellers with a lemon have a reservation price of zero, while sellers with a good car have a reservation price of $1200. Car dealers (buyers) have $3000 to spend on cars. Lemons have a resale value of $500 to the dealers, while good cars are valued at $2500. Dealers, however, do not know which type of car the sellers are selling; they only know that half of all cars sold will be lemons. The market opens with all dealers (buyers) simultaneously revealing their price offers. Car owners (sellers) are then free to sell their cars to any dealer on a first-come, first-served basis. After all trades are completed, the quality of the cars traded are revealed. Additional rounds are played until buyers realize that only lemons are being supplied to the market (and the price has fallen to around $500). |
| Class size: | 10 to 40 students. |
| Time: | 50 minutes. |
| Variations: | Allow sellers to signal the quality of their car by purchasing proof that their car is not a lemon (by paying $100 to the instructor for the right to reveal their car's quality before a trade takes place). |
| See also: | Information games |
| Game: #67 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Imperfect/asymmetric information and insurance. |
| Objective: | Illustrates the impact of asymmetric information on the market for insurance. |
| Reference and contact: | O'Sullivan, Arthur and Steven N. Sheffrin. Economics. Upper Saddle River, New Jersey: Prentice Hall, 1997 (pp. 328-329); arthur.osullivan@orst.edu; smsheffrin@ucdavis.edu |
| Abstract: | Students are divided into small groups representing bicycle insurance companies. Each insurance company chooses a price at which they will offer bicycle theft insurance. Each insurance group must pay $100 for each insured bike that is stolen. There are two types of bicycle owners: those that have a high probability of bike theft and those that have a low probability of bike theft. The insurance companies cannot distinguish between the two types of bicycle owners, though they know that 20% of all bikes are stolen each year. The instructor provides each insurance company with "a table showing, for each price of bike insurance, how many owners of each type (high probability and low probability) will purchase insurance." Student insurance groups can then calculate their total revenue, number of bikes stolen, and their replacement cost. The insurance groups earn a profit equal to total revenue minus total replacement cost. The experiment is run for several periods. |
| Class size: | Any number. |
| Time: | Less than one class period. |
| Variations: | None indicated. |
| See also: | Information games |
| Game: #68 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Economics of information. |
| Objective: | To illustrate the impact of imperfect information on consumer choice behavior. |
| Reference and contact: | Netusil, Noelwah R. and Michael Haupert. "The Economics of Information: A Classroom Experiment." Journal of Economic Education, 26(4), Fall 1995, pp. 357-363; netusil@reed.edu ; haupert@mail.uwlax.edu |
| Abstract: | Students are
divided into seven groups, each containing five or fewer
members, and asked to rank the quality of various brands
of pumpkin pies (or some other suitable experience good).
Each group is provided with a different set of
information upon which they based their product quality
judgments:
Group rankings are obtained and written on the blackboard. Next, the identity of the pies is disclosed but not the prices. Each group that does not have price information is asked to briefly explain the basis of its decision. Each group is then asked to guess the relative prices of each brand. When played, in each case, students assumed that the higher quality pies had higher prices. Post experiment discussion can focus on the role of various signals of product quality such as price, brand names, reputation, warranties, and publications (such as Consumer Reports). |
| Class size: | Any size. |
| Time: | 30 minutes. |
| Variations: | Authors note that they did not control for the order in which the goods were judged. This, however, could lead to a discussion of potential order bias. |
| See also: | Information games |
| Game: #69 | ||||||||||||||||
| Course: | Micro | |||||||||||||||
| Level: | Principles and up | |||||||||||||||
| Subject(s): | Economics of information | |||||||||||||||
| Objective: | Illustrates the moral hazard problems associated with principal-agent relationships. | |||||||||||||||
| Reference and contact: | Ortmann, Andreas and David Colander. Experiments in Teaching and in Understanding Economics. Burr Ridge, IL: Irwin, 1995. (Experiment #6); and Ortmann, Andreas and David Colander. "A Simple Principal-Agent Experiment for the Classroom." Economic Inquiry, 35(2), April 1997, pp. 443-450. | |||||||||||||||
| Abstract: | A one-sided
prisoner's dilemma game is used to represent the
strategic uncertainty where an agent can supply a good at
either high quality or low quality, and a principal can
either verify the quality at cost or trust the agent.
Students are presented the following payoff table. The
principal's (Player 1) payoffs are listed first.
The class is divided into buyers and sellers by giving each type a different colored piece of paper on which to record their decisions. Each player is given an endowment of one quarter (25 cents). The players are then told to mingle about the room in search of a player of the opposite type. Once located, the two players may discuss the optimal strategy of combination but they must record their choice privately (along with their initials for identification purposes). Each pair then submits their choices to the instructor. The instructor then determines each player’s payoffs according to the matrix above: if the upper left corner is the outcome, give each player an additional quarter; if the lower left corner is the outcome, take the initial endowment from player 2 and give it to player 1, then give player 1 an additional quarter; if the lower right corner is the outcome, take no action. Ortmann and Colander claim that you will see about as much cooperation in the one-sided game as in the more traditional two-sided game. |
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| Class size: | Any even number of students. | |||||||||||||||
| Time: | 30 – 45 minutes. | |||||||||||||||
| Variations: | The game could be repeated using different information conditions or the reputations of players could be kept secret or revealed. | |||||||||||||||
| See also: | Information games | |||||||||||||||
| Game: #70 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Common pool resources and cartels. |
| Objective: | Illustrates the coordination problems associated with common pool resources and cartels. |
| Reference and contact: | Ortmann, Andreas and David Colander. Experiments in Teaching and in Understanding Economics. Burr Ridge, IL: Irwin, 1995. (Experiment #5) |
| Abstract: | The instructor announces to the class that he has a sum of money that will be auctioned off. Bidders must submit sealed bids. The highest bidder wins the auction and receives a payoff equal to the sum of money minus his or her bid. If there is a tie for the highest bid, those students will share the difference between the sum of money and the value of their identical bid. Students are given five minutes to jointly discuss an optimal strategy. Students should be able to recognize that the optimal group strategy is for everyone to bid zero. However, since each bidder makes his or her bid privately, the individual incentives are high enough to lead to an overall low payoff. |
| Class size: | Any number. |
| Time: | Less than one class period. |
| Variations: | None indicated. |
| See also: | Common pool and oligopoly games |
| Copyright 2000 by Greg Delemeester
and Jurgen Brauer Last Updated: 02/20/2005 |