Classroom experiments on equity, efficiency, and distribution of wealthDescriptions come from Games Economists Play: Non-Computerized Classroom-Games for College Economics by Greg Delemeester and Jurgen Brauer Game: #12 - Course: Micro; development economics; international economics (depending on variation)
- Level: Principles and up (depending on variations used)
- Subject(s): Endowments/market exchange/wealth distribution
- Objective: "This simulation illustrates three issues: ¹ the potential of market exchange to generate mutual welfare gains; ² the role of unequal financial endowments in affecting market opportunities; and ³ the impact of differences in individual skills, effort, and creativity on the observed distribution of wealth" (Williams, 1993, p. 325)
- Reference and contact: Williams, Robert B. "Market Exchange and Wealth Distribution: A Classroom Simulation." Journal of Economic Education, 24(4), Fall 1993, pp. 325-334, or contact Dr. Robert Williams; Department of Economics; Guilford College; Greensboro, NC 27410; bwillia2@guilford.edu
- Abstract: Students are randomly placed into 'poor,' 'middle class,' and 'wealthy' groups. The initial endowment for each group are differently colored M&M candies. Each color represents a different value (from Brown=1 point to Green=10 points). The total endowment across the groups is distributed 1:2:3. Students are given 5 to 7 minutes to freely trade their M&Ms with one another, within or across their wealth group. The incentive for wealth accumulation is that accumulating the 3rd M&M of a color increases the value of the portfolio, i.e., the marginal value of the 3rd M&M of a color is higher than the inframarginal values, or values of the 1st and 2nd M&Ms. Students are provided with a handout detailing the value of each M&M, to record their trades, and to compute the value of their portfolio after each trade. Time permitting (50 or 75 minute class period), students debrief themselves, and then play a second and perhaps a third round.Depending on the topic at hand, the instructor may use the game to illustrate a number of economic concepts relating to pareto optimality, mutually beneficial exchange, the impact of initial wealth endowment, the influence of students 'animal spirits' and intuitive grasp of trading opportunities on wealth accumulation, the difference between absolute and relative poverty, the idea of charity (one student gave some M&Ms away to the 'poor'), and so on.
- Class size: Small (can be adapted to larger classes)
- Time: 50 to 75 minutes
- Variations: (a) make the initial endowment more or less skewed to reflect initial income distribution in different countries; (b) let the groups represent countries rather than income-classes within a country.
Game: #29 - Course: Micro
- Level: Principles and up
- Subject(s): Ultimatum bargaining
- Objective: To illustrate several basic economic principles including the difference between equity and efficiency, marginal analysis, sunk costs, strategic behavior, and opportunity costs.
- Reference and contact: Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #2); yandell@acusd.edu
- Abstract: Students are paired up and given the task of dividing a fixed sum of money. The Proposer makes a proposal to the Responder, who can either accept or reject the proposal – negotiation is possible. If the proposal is accepted, students earn the amounts specified in the proposal. If the proposal is rejected, each student receives a zero payoff. The game is played for 10 rounds.
- Class size: Any number of students.
- Time: 30 minutes.
- Variations: Instructor could allow players to openly communicate with each other, students could play against an anonymous partner, or substantially higher stakes could be used.
Game: #56 - Course: Micro
- Level: Principles and up
- Subject(s): An Experiment in Income Redistribution and Poverty Measurement
- Objective: To get students to question the notion of income equality and poverty measures.
- Reference and contact: Deitz, Richard. "An Experiment in Income Redistribution and Poverty Measurement." Classroom Expernomics, 5², Fall 1996, 5-6; rmdgsm@rit.edu
- Abstract: Each student in class must contribute $1 to a class fund. The sum of the contributions will then be given to a single class member. A small group of students must jointly and unanimously determine who that person will be. The recipient may not share the money with anyone else. The group may use any criteria is so desires — except for chance. Discussions usually focus on questions such as who is most deserving? who is the poorest? who works the hardest? what will the recipient do with the money? Discussion can then be oriented toward how current poverty programs and taxes are administered.
- Class size: Limit to 10 actively participating students.
- Time: 30 minutes.
- Variations: None indicated.
Game: #57 - Course: Micro
- Level: Principles and up
- Subject(s): Pareto-efficiency; equity and efficiency tradeoffs
- Objective: Illustrates equity-efficiency tradeoffs, frustration with relative inequality, and interdependence of decision making.
- Reference and contact: Peterson, Ken. "Equity and Efficiency in a Game." Classroom Expernomics, 4¹, Spring 1995, pp. 1-2; ken.peterson@furman.edu
- Abstract: Students are told to quietly write down either "½" or "3" on a piece of paper. Each student will receive bonus points equal to the number they wrote down – unless more than three students have written "3" in which case all students will receive zero bonus points. Invariably, more than three students write down "3" so that all students end up with zero points. The instructor points out to the students how wonderful the equal distribution of points is and asks if the outcome was Pareto efficient. In another round, the instructor can reveal names of those choosing the number three by writing names on the blackboard (this may simulate ‘social punishment’ or learning). In still another round, the instructor may encourage students to communicate with each other during the decision process.
- Class size: Up to 20 to 30 students.
- Time: 30 minutes.
- Variations: Smaller class sizes can be accommodated by reducing the critical number of "3s" to two.
Game: #101 - Course: Micro
- Level: Principles and up
- Subject(s): Bargaining
- Objective: To learn how to solve simple sequential games through backward induction.
- Reference and contact: Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #13)
- Abstract: Class is divided into buyers and sellers of bicycles in a bilateral bargaining environment. Buyers are willing to pay up to $150 and sellers are willing to accept down to $100. The experiment is divided into three sessions. Session 1 is an ultimatum game in which buyers write down their bids and sellers either accept or reject the bids. Session 2 is a two-stage game in which sellers can either accept or reject a buyer’s initial offer or write a counteroffer to the buyer. Buyers who receive counteroffers can accept or reject the counteroffers. Session 3 is a three-stage game in which buyers can make a second offer after rejecting the seller’s counteroffer Class size: 15 to 60 work smoothly; larger class sizes can be accommodated.
- Time: One class period
- Variations: None indicated
Game: #120 - Course: Micro, public finance
- Level: Principles and up
- Subject(s): Equity/Efficiency tradeoffs
- Objective: To illustrate issues regarding equity and efficiency regarding income distribution.
- Reference and contact: Alden, Lori. "The Distributive Justice Game." Classroom Expernomics, 9¹, Fall 2000.
- Abstract: Students are told that a limited number of resources (pens, chairs, textbooks, etc.) will be made available for an upcoming extra credit quiz. The resources are initially distributed according to student characteristics (such as race, sex, wealth). Following Rawls' "veil of ignorance", students are informed that prior to the quiz-taking, all students will be "reborn" with new characteristics. Students must then jointly draft a "social contract" to redistribute the resources before the quiz can be taken.
- Class size: Class is divided into groups of ten students.
- Time: One class period.
- Variations: None stated.
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