The Players and the Goals
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The Players and the Goals Two types of consumers Non-smokers (eat pizza). Smokers (eat pizza and smoke) Consumers’ goal: Maximize utility. Cigarette firms make and sell Cigarettes Each firm’s goal: Maximize profit. The Players and the Goals Two types of firm

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The Players and the Goals Two types of consumers Non-smokers (eat pizza)

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The players and the goals two types of consumers non smokers eat pizza

  • The Players and the Goals

  • Two types of consumers

    • Non-smokers (eat pizza)

  • Smokers (eat pizza and smoke)

  • Consumers’ goal: Maximize utility


  • The players and the goals two types of consumers non smokers eat pizza

    • Cigarette firms make and sell Cigarettes

  • Each firm’s goal: Maximize profit

    • The Players and the Goals

    • Two types of firm

      • Pizza firms make and sell Pizza

    Profit = Ending $


    The players and the goals two types of consumers non smokers eat pizza

    = 1 Cigarette

    Cigarette

    = 1 Pizza

    Pizza

    = 1 dollar

    $

    Objects


    The players and the goals two types of consumers non smokers eat pizza

    • Phases of Play

    • Goods market round

    • Non-smokers buy Pizza from Pizza firms for $.

    Pizza

    $


    The players and the goals two types of consumers non smokers eat pizza

    • Phases of Play

    • Goods market round

    • Smokers buy Pizza from Pizza firms for $, and Cigarettes from Cigarette firms for $.

    Cigarette

    Pizza

    $


    The players and the goals two types of consumers non smokers eat pizza

    • Phases of Play

    • Goods market round

    • The catch:Second hand smoke is annoying to non-smokers.

    • Smoker #1’s second hand smoke annoys Non-smoker #1.

    • Smoker #2’s second hand smoke annoys Non-smoker #2.

    • Etc.


    The players and the goals two types of consumers non smokers eat pizza

    • Phases of Play

    • Goods market round

    Smokers

    Utility = (Cigarettes + 1) (Pizza)

    Non-smoker #1

    Utility = Pizza –Smoker #1’sCigarettes

    Non-smoker #2

    Utility = Pizza –Smoker #2’s Cigarettes

    etc. for all Non-smokers.


    The players and the goals two types of consumers non smokers eat pizza

    Utility and Profit Round

    1. Non-smokers reportPizza purchased.

    2. Smokers reportPizza and Cigarettes purchased.

    3.Pizza firmsreport ending cash.

    4.Cigarette firmsreport ending cash.


    The players and the goals two types of consumers non smokers eat pizza

    Trading Rules

    Firms must remain in their seats.

    Firms display cards indicating their ask prices.

    Consumers may only purchase 1 unit of product at a time.

    Runner purchases one unit, takes it to manager, goes back and purchase another unit, etc.

    Manager calculates impact on utility of hiring one more product of each type.


    The players and the goals two types of consumers non smokers eat pizza

    Ready to begin…


    The players and the goals two types of consumers non smokers eat pizza

    Goods Market Round

    Non-smokers buy Pizza for $.

    Smokers buy Pizza and Cigarettes for $.

    Non-smoker #n

    Utility = Pizza –Smoker #n’sCigarettes

    Smokers

    Utility = (Cigarettes + 1) (Pizza)


    The players and the goals two types of consumers non smokers eat pizza

    Utility and Profit Round

    1. Non-smokers reportPizza purchased.

    2. Smokers reportPizza and Cigarettes purchased.

    3.Pizza firmsreport ending cash.

    4.Cigarette firmsreport ending cash.


    The players and the goals two types of consumers non smokers eat pizza

    New Rule

    Non-smokers have successfully lobbied the government to outlaw smoking. Cigarette firms no longer exist.


    The players and the goals two types of consumers non smokers eat pizza

    Ready to begin…


    The players and the goals two types of consumers non smokers eat pizza

    Goods Market Round

    Non-smokers buy Pizza for $.

    Smokers buy Pizza and Cigarettes for $.

    Non-smoker #n

    Utility = Pizza

    Smokers

    Utility = Pizza


    The players and the goals two types of consumers non smokers eat pizza

    Utility and Profit Round

    1. Non-smokers reportPizza purchased.

    2. Smokers reportPizza purchased.

    3.Pizza firmsreport ending cash.


    The players and the goals two types of consumers non smokers eat pizza

    New Rule

    Smokers may purchase the right to smoke from Non-smokers.

    = 1 smoking voucher (each)

    1 smoking voucher entitles the smoker to smoke 1 cigarette.


    The players and the goals two types of consumers non smokers eat pizza

    New Rule

    Smokers may purchase the right to smoke from Non-smokers.

    Pizza

    $

    Smoker #1 may buy vouchersonly from Non-smoker #1.

    Smoker #2 may buy vouchersonly from Non-smoker #2.

    etc.


    The players and the goals two types of consumers non smokers eat pizza

    Ready to begin…


    The players and the goals two types of consumers non smokers eat pizza

    Goods Market Round

    Non-smokers buy Pizza for $.

    Smokers buy Pizza, Cigarettes, and vouchers for $.

    Non-smoker #n

    Utility = Pizza –Smoker #n’sCigarettes

    Smokers

    Utility = (Cigarettes + 1) (Pizza)


    The players and the goals two types of consumers non smokers eat pizza

    Utility and Profit Round

    1. Non-smokers reportPizza purchased.

    2. Smokers reportPizza,Cigarettes, and vouchers purchased.

    3.Pizza firmsreport ending cash.

    4.Cigarette firmsreport ending cash.


    The players and the goals two types of consumers non smokers eat pizza

    Results…


    The players and the goals two types of consumers non smokers eat pizza

    The experiment simulated three conditions

    1.Undefined rights

     No one owned the air.

    2.Non-transferable rights

    Non-smokers owned the air, but they could not sell the air to smokers.

    3.Transferable rights

    Non-smokers owned the air and could sell the air to smokers.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    The appropriate role for government is the protection of rights.

    In a political society, people also rely on the government to restrict rights of others for the common good.

    In a civil society, people freely choose not to exercise their rights in mutual exchange.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    The problem with asking the government to restrict rights for the common good is that the government does not know what the appropriate level of restriction is.

    When the government restricts markets, prices cannot emerge and so there are no value metrics on which to base decisions.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Example

    Government provided primary and secondary education.

    Common good = “high test scores” (as a proxy for quality of education)

    Problem #1:With no prices, the appropriate level of quality is unknowable (zero is as bad as infinity).

    Problem #2:Without a profit motive, there is no incentive to find the drivers of quality education. Instead, incentive is to find the drivers of revenue.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Question

    With respect to public primary and secondary education, what drivers might impact educational quality?

    Example: Student-teacher ratio


    The players and the goals two types of consumers non smokers eat pizza

    Student-teacher ratio has no apparent impact on NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    School size has no apparent impact on NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Spending per Pupil has no apparent impact on NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Median Family Income has no apparent impact on NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Maybe standardized test scores are the wrong proxy for quality.

    What about the drop-out rate?


    The players and the goals two types of consumers non smokers eat pizza

    Spending per Pupil has no apparent impact on dropout rate.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Median Family Income has no apparent impact on dropout rate.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Does aggregating data at the state level hide information?

    What happens if we look at the school district level?


    The players and the goals two types of consumers non smokers eat pizza

    Each dot represents one school district in Minnesota.


    The players and the goals two types of consumers non smokers eat pizza

    Spending per pupil has no apparent impact on test scores.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Does nothing impact educational quality?

    Performance is not random -- it is predictable.


    The players and the goals two types of consumers non smokers eat pizza

    For 8th grade, past NAEP scores predict future NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    4th grade NAEP scores predict 8th grade NAEP scores.

    Source: National Center for Education Statistics, U.S. Department of Education


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    The fact that schools exhibit a consistency in performance indicates that performance is not random.

    Performance drivers are unknown to the government because the government does not have the incentive and/or the ability to find them.


    The players and the goals two types of consumers non smokers eat pizza

    • Civil Society vs. Political Society

    • The achievement of a civil society requires two things:

    • A set of laws and institutions that define and protect property rights.

    • The freedom to act in the market place free from government coercion.


    The players and the goals two types of consumers non smokers eat pizza

    Civil Society vs. Political Society

    Without political freedom, economic freedom is unattainable. Without economic freedom, political freedom is meaningless.


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