Plan section
Objectives of this experiment Materials needed
procedure experience
Results, interpretation and discussion
variants
Citations
Appendices
Objectives of this experiment
This is an experiment on externalities. It falls within the Programme II (September 2010) (Part 3.2 "Pollution: How to overcome the limitations of the market?") And First (September 2011) (Part 3.4 "What are the main market failure?" ). An externality occurs when the action of an individual has an influence on the welfare of one or more other individuals without this resulting in transactions between the individual causing the externality and those who benefit (positive externality) or suffer (negative externality). This is a market failure: economic theory shows that the competitive equilibrium (where laissez-faire), the producer (or consumer) generates too many or too few negative externalities positive externalities compared to the social optimum.
This experiment simulates a situation in which two firms are located along a river. Firm A is upstream and activity generates pollution of the River. Firm B is located downstream and must clean up the river water to produce power. Without a mechanism limiting the negative externality generated by the activity of the firm A, the pollution from the latter may be excessive in relation to the loss of efficiency it is subjected to firm B. However, with the introduction of a mechanism limiting the externality, collective efficacy should improve.
Some students will be "type A firm: they will be tasked to perform relatively complex multiplications using several pieces of paper at their disposal and a pencil. Their production is evaluated by the number of exact calculations produced. Other students will be "type B firm" after receiving the paper sheets used by students-firm A, they will erase the present calculations on these sheets and then use these sheets cleared to build paper airplanes.
These tasks are repeated twice during two separate periods. During the first period, the fact that student use Firm A few or many pieces of paper to make their calculations of no consequence to them. Leur gain dépend seulement du nombre de calculs exacts produits. Au cours de la deuxième période, en revanche, les élèves firme B sont propriétaires des morceaux de papier et les élèves firme A doivent donc acheter à un certain prix ces morceaux de papier aux élèves firme B. Le gain des élèves-firme A est toujours d'autant plus élevé qu'ils produisent beaucoup de calculs exacts mais, contrairement à la première période, d'autant plus faible qu'ils utilisent beaucoup de morceaux de papier pour effectuer leurs calculs. Il s'agit alors d'observer dans quelle mesure la pollution (la surface de papier crayonnée) diminue d'une période à l'autre et de mesurer les gains collective efficiency enabled by the allocation of property rights on pieces of paper to students firm B.
Materials needed
1 instruction sheet per student (Appendix 1) a results sheet for 2 students (Appendix 2)
1 sheet of A4 paper for 2 students. Each sheet is previously cut into 10 pieces of identical size (Appendix 3) and sets of 5 pieces of paper will be formed.
few sheets of scrap (about one for every two students).
1 pencil for every two students.
an eraser to two students. Take, if possible gums identical sizes (pencils with eraser for example)
procedure experience
1. Formation of groups and pairs of students and Read instructions
teacher is 1 or 2 assistants so that the number of students staying is even. The teacher divides students into 2 groups remain of equal size. The group located to the right the teacher is appointed group of student firm A. The group located to the left of the teacher is appointed group of student firm B. Each student firm A is associated with a student company B. teacher and (or) the assistants distribute an instruction sheet to each student and a results sheet for each student firm A (the scorecard will also be one of the student member firm B ). The teacher reads the game instructions, answered questions and ensure that each student has understood the rules of the game
2. The game
Period 1
The teacher asks students-firm A to retain on their table as a pencil and paper (no calculators, laptop ...). assistants distribute to each student firm A 5 pieces of paper. They then leave available to the student-company B a few sheets of scrap.
The teacher reminds students that they will firm A-3 minutes to address the possible multiplications multiplications among 10 that will write on the blackboard, and this by using pieces of paper and pencil available to them. It requires students to dedicate this firm B 3 minutes to train to build paper airplanes, which experts to extend their knowledge to less advanced in this field.
The teacher starts his watch and record the 10 multiplications to solve the board. It must be multiplication by 2 to 3 digit numbers (such as 376x92) so that these multiplications can not normally be made of the head.
After 3 minutes, the teacher gives the results of multiplications and requires élèves-firme A d'inscrire les points obtenus sur leurs feuilles de résultats (1 point par calcul exact). L'enseignant demande alors à chaque élève-firme A de donner à l'élève-firme B auquel il est associé ses 5 morceaux de papier ainsi que la feuille de résultats. Il peut également demander aux élèves-firme B de vérifier que leurs élèves-firme A associés n'ont pas commis d'erreurs dans le comptage des points. L'enseignant et ses assistants veillent à ce que les élèves-firme B ne commencent pas leur activité avant que le signal soit donné.
L'enseignant rappelle aux élèves-firme B qu'ils vont avoir 3 minutes pour réaliser paper airplanes, these airplanes will be clean (all the pencil marks must be erased) and could fly and he is not allowed to tear parts of pieces of paper they have. The timer is triggered.
After 3 minutes, the teacher asks students to firm B-to stop their activity and record their points (2 points per plane acceptable). He may ask the student firm A quality control aircraft (airworthiness and cleanliness) of their student-firm B shareholders.
Period 2
The teacher and his assistants shall ensure that pieces of paper airplanes and the first period are thrown into the trash. As at Time 1, the assistants distribute to each student firm A 5 pieces of paper. However, he said that now each student A firm must pay the student firm B it is associated with one point per piece of paper.
The procedure then continues in the same manner as during the period 1. A firm-students have 3 minutes to solve a maximum multiplication of the 10 new registrants Table. Students-firm B then 3 minutes to achieve maximum paper airplanes "clean". Each records the points he obtained on his scorecard.
Results, interpretation and discussion
The results are generally observed. A firm-students use fewer pieces of paper (they pollute less) in Period 2 than Period 1, without the exact number of multiplications performed (production) decreases significantly. This increases the production of student firm B (the acceptable number of aircraft construits). Et, le nombre total de points obtenus par l'ensemble des élèves à la période 2 est supérieur à celui obtenu à la période 1. Les élèves expérimentent ainsi eux-mêmes ce qu'est une externalité. Aidés par l'enseignant, ils peuvent assez aisément construire une définition de la notion lors de la discussion succédant au jeu. Au cours de cette discussion, les élèves sont amenés à proposer des exemples de la vie économique où se manifestent de telles externalités. Pour ce faire, ils peuvent être invités à contextualiser leur expérience à partir de questions du type : quelles pourraient être concrete goods produced by firms A and B firms, and under what circumstances firms A activity could affect the efficiency of firms B?
The teacher can ask students if the influence of the activity of some other economic agents without any transaction between these agents is: 1) always negative, 2) always production activity. This is to enable students to understand that externalities can be: 1) negative or positive, 2) externalities of production or consumption.
experience also facilitates understanding des externalités en tant que défaillance du marché. A la période 1, les élèves-firme A n'auraient-ils pas pu résoudre autant de multiplications qu'ils en ont résolu en utilisant moins de papier ? Les résultats de la période 2 tendent normalement à montrer que la réponse est oui, ce qui signifie qu'en organisant la production telle qu'elle est organisée à la période 1, un gaspillage de ressources a lieu. Reste à savoir comment éviter ce gaspillage. La solution imposée à la période 2 est la solution de Coase (1960) : grâce à une spécification des droits de propriété sur les morceaux de papier (les élèves-firme B en sont propriétaires) and low transaction costs (because the price of a piece of paper is fixed a priori), the economic organization is more efficient in period 2 than period 1.
The questions posed by the imposed solution in period 2 are numerous. Are there concrete examples of such a solution to the problem of externalities? The results of the game would they change if property rights were granted to student-Firm A Firm B rather than students? Is it still possible to specify property rights in the Commons? Hence the price of the piece of paper set in period 2 can he come? Why can we say that this solution leaves much room for market coordination? What other solutions (including more interventionist) exist or can be imagined?
In conclusion, we can highlight some features of this educational experience. It is not the result of research experience: it was designed from the outset specifically for an educational purpose. The cost in terms of preparation for the teacher and class time is low. It is very easy to adapt to the class level: beyond knowledge base allows it to understand (externalities, waste of resources ...), the teacher can build on this experience to introduce more advanced concepts (Pareto, Coase Theorem, Pigouvian solutions, tragedy of the commons, passenger Underground ...)
variants
Variant 1
In the classic version of the game, students are B-firm, in period 2, owners of pieces of paper and price that firm A student must pay is set at 1 point per piece of paper. Alternative 1 is to add 1 March e period at the beginning of which the group of students-firm A and group B students-firm negotiate the price of a piece of paper used, students with B-firm, as in the classic version, the rights of ownership of pieces of paper. The teacher said that the price negotiated between the two groups is unique and will be that each student must pay firm A to firm B the student to whom he is associated. This variant highlights a limit of solution 2 (solution Coasian), which is to consider that the price of a piece of paper is known a priori, which implies that Transaction costs are virtually nil. Indeed, it is likely that both groups are (too) much time to agree on a price or that the negotiation is not successful. Variant 2
The solution imposed on the period 2 in the classic version is replaced by the following solution. Neither the student nor Firm B Firm A-students are owners of pieces of paper, pieces of paper are a common resource. At the beginning of period 2, each firm A student must choose between using a pencil or use a ballpoint pen (or felt pen feather ...). The pencil is rented, the cost of rental is 4 points, paid to the teacher. The hiring of a ballpoint pen costs 2 points, paid to the teacher. In other words, firm A student may choose between two production technologies: one is expensive but highly polluting and other low-polluting but very expensive. After the 3 minutes given to student A firm resolve to multiply, they count their points and dropping off their loose pieces of paper (blank, sketches in pencil or ballpoint pen ) on the desktop. The teacher and reconstitute his assistants packages of 5 pieces of paper about balancing the number of blank paper, pencil and paper and pencil sketches in ballpoint pen contained in each packet. The task of the student firm B is the same as in the classic version.
This variant highlights a limit of solution 2, which is to consider that property rights can be specified and it can identify individual polluters. But in reality as in option 2, it is often a set of producers who pollute (a river, air ...) and which undermine the effectiveness (Or, more generally, the well-being) of other economic agents. In this context, the Coasian solution would be difficult to enforce.
Variant 3
The solution imposed on the period 2 in the classic version (Coasian solution) is replaced by the solution (Pigouvian) below. Neither the student nor Firm B Firm A-students are owners of pieces of paper, pieces of paper are a common resource. A fee of 1 point per piece of paper used is supported by student firm A (the principle of polluter-pays). The teacher collects ces taxes. La feuille de résultats est modifiée de façon à ce que ces taxes viennent s'ajouter au résultat total de l'activité économique. Cette variante peut également être introduite au cours d'une 3 e période (après la version classique du jeu) afin de faciliter la comparaison des deux solutions lors de la discussion.
Variante 4
A l'issue de la période 1, le jeu laisse place à un temps de discussion. Au cours de celui-ci, la notion d'externalité est introduite et l'externalité est reconnue en tant que défaillance du marché (gaspillage resources). Students should then imagine how the rules could be modified to reduce this waste : this can be achieved during the session or as homework for the next meeting . The game then resumed: The solution or solutions adopted are implemented in subsequent periods. The following discussion focuses on the comparison of different solutions tested. Were they effective? Their implementation has it posed some challenges? Can we consider that these solutions are similar mechanisms exist in reality to address problems of externalities?
Citations
This educational experience is due to: G. Hoyt, P. Ryan and R. Houston (1999) " The Paper River: A Demonstration of Externalities and Coase's Theorem ," Journal of Economic Education , 30, p.141-147.
versions in French are in: Eber N. (2003) , "Educational Games : Towards a new teaching of economics, "Journal of Political Economy , vol. 113, No. 4, p. 483-521, July-August 2003.
Economics and Social Sciences , Manual Second , Bordas, 2010.
A modified version of the game (which is inspired variant 2), showing the limits of the Coasian solution lies in: Andrews, TP (2002), "The Paper River Revisited : A common property externality exercise, "Journal of Economic Education , 33, p.327-332.
A presentation of the economic analysis of externalities can be found in: Leveque, F. (2005) , Economics of Regulation Insights, La Découverte.
Article Coase (1960) with the Coase Theorem: Coase, RH (1960), "The Problem of Social cost " Journal of Law and Economics 3 (October), p.1-44.
Appendices
Appendix 1: Instruction Sheet (. Doc or . pdf) Appendix 2: Score Sheet (. Doc or . pdf)
Appendix 3: Template for cutting out an A4 sheet into 10 pieces (. pdf)
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