paper river, The

A number of economics-related games are available on the World Wide Web. However, problems with games arise when students try to translate the lessons learned into a coherent piece of written work or to apply the concepts to a current economic problem. This game introduces students to Coase's Theorem. The follow-up work shows how a case study can be used to apply the theory.

This game was originally published in the Journal of Economic Education, Spring 1999, by Gail M. Hoyt, Patricia L. Ryan, and Robert G. Houston, Jr. We are grateful for their permission to adapt and reproduce it here. here.

The Paper River involves two teams. The first team, Team A, makes a product (answers to mathematical sums) using small slips of paper. Team B then uses the same slips of paper that Team A used and attempts to construct with them another product (paper aircraft). Initially, Team B is frustrated in its task by pollution (in the form of Team A's pencil marks). A Coasian solution is offered and the game replayed with property rights allocated to one of the teams.

MATERIALS REQUIRED

Two sheets of multiplication tasks (eg 23 x 146) photocopied or on overheads The multiplication tasks need to be sufficiently hard for students to have to work out the answers on the paper rather than in their heads. However, do avoid questions with 5 digit answers, as they take too long to calculate. The quickest students might manage 10 or 12 questions in 3 minutes.

Answers to questions, on pied sheets or on an overhead

A4 paper cut up beforehand into 10 equallysized pieces.

You need 10 slips of paper for each team member of Team A. Five slips will be used in Round 1 and 5 slips in Round 2.

Have available more A4 than is strictly necessary, but restrict the paper given to Team A to 5 pieces per student per round. The size and rationing of the paper is important for a successful game. Fold the paper in half lengthways and cut. Then cut 5 equal pieces from each half You should have 10 pieces, each approximately 6cm x 10.5cm in size.

Pencils and erasers, sufficient for one for each member of the class.

PROCEDURE

1 Instruct students to clear all surfaces except for a pencil and erasers (no calculators). Some students might ignore you and use pens. Let this pass. (It could work to your advantage later on.)

2 Divide the class into two firms, A and B. If there is an odd number of students, appoint one student as timekeeper and assistant.

ROUND 1

3 Give out photocopied multiplication problems, or display them on an overhead. An additional sheet of questions is useful to keep in reserve. Give out 5 slips of paper to each member of Team A.

4 Tell Team A that it has three minutes to answer as many questions as it can. At this stage, do not tell Team B what it will be doing. Do not tell Team A what Team B will be doing. It suits your purposes for both Team A and Team B to think that they will be competing against each other to see who can get the most multiplication tasks correct!

Allow the team members sufficient time to organize themselves first. It does not matter if they all answer the same questions or different ones as long as each team member does the calculations for himself/herself on separate slips of paper, and uses a different slip of paper for each calculation - it is important to end up with as many of the slips of paper as possible having been written on. Many students will use up most of their paper supply, will have pressed very hard or will have used a pen. Good! That's what you need to make the rest of the game work.

5 The answers represent the product of Firm A. Award 1 point for each correct answer.

6 Mark, or ask students to mark, the answers and write up the scores on the board or overhead.

7 Take in all the pieces of paper.

8 Show Team B how to make a simple paper aircraft from a spare piece of paper. Hand out to Team B all the paper collected in from Team A. This should mean that every member of Team B receives five pieces of paper.

9 Tell the students that Team B will be awarded three points for every aircraft made that meets certain specifications. Aircraft must be free of any visible pencil or pen marks. No points will be awarded for aircraft that have any visible pencil or pen marks on them. Each aircraft must be exactly the same as the demonstrated model.

Students will be able to make some aircraft without problems but will have to use valuable time rubbing out Team A's pencil marks. Some slips of paper may have been spoiled beyond use.

10 Allow three minutes for Team B to complete the task. Examine the aircraft and write up the scores. You need to be very strict about the quality of the aircraft produced. Do not allow any pencil marks or tears. By this stage, Team B is likely to have complained that they did not have enough clean paper.

EXPLANATION TIME

It is important that the students do their own explaining: don't do it for them. Tease the answers out of them through judicious questioning.

It is Team B that needs to be questioned first. The key question to Team B is Why were you so poor at producing aircraft?' The answer is, of course, that Team A had made a real mess of the raw materials that Team B needed. 'If you'd given us clean paper, we'd have got on a lot better.'

The key question to Team A is "Why did you work in such a messy fashion?'You are looking for answers such as 'Well, nobody told us that we couldn't! And, anyway, we were under time pressure, and the rewards were for getting answers right, and not for neatness.'

The question then to Team A is 'What might I, as the organiser of all this, have done to ensure that you were in a position to pass on to Team B as many clean, unspoiled slips of paper as possible?'

You are looking for answers such as: 'You could have instructed us to use as few slips of paper as possible, so that most of them remained clean! and 'You could have told us that we would be fined I point for every bit of paper that we used. This would have given us an incentive to use as few slips of paper as possible'. If you are really lucky, someone may say 'You could have told us that we would get an extra point for every slip of paper that we handed back in clean.' With a bit of luck, someone may also add 'If you'd told us at the outset what was going to happen to the slips of paper after we had finished with them, we'd have been more careful what we did with them ....... I think!'

These answers set the scence nicely for moving on to consider some genuine industrial parallels.

11 Explain that the paper represented a natural resource, water, flowing along a river. Team A are the equivalent of a chemical company that is up-river and which has polluted the river (messed up the paper). For students whose concept of upstream/downstream is hazy, it is useful to sketch a river and factory on the board, and show the water flow.

Students who used pens instead of pencils are like firms that do not listen to government advice or who break laws, rules and regulations.

Team B are the equivalent of a fish farm downstream that has to cope with the negative externality (messed up paper).

ROUND 2

12 Replay the game, but this time tell Team A that for each piece of paper that is defaced you will take away one point from their final score and transfer it to Team B.

Team A should now be much more careful about using the paper eg using both sides, writing smaller, avoiding ink, and not pressing as hard with their pencils.

13 Write up the scores on the board or overhead.

You should find that Team A's gross score has changed little, but they will then lose some points that are transferred to Team B. Team B will do much better, as they have more clean paper to work with, and so produce more output, and also because they benefit from transferred points.

14 Discuss how and why Team A's behaviour changed, drawing on lessons learned from the earlier discussion.

15 Explain that in Round 2, property rights were assigned to Team B. In every instance where Team B was obliged to work with adulterated inputs (defaced paper) it received compensation, paid by Team A. Team A was having to pay for the damage it was doing to the materials for which Team B had the property right. Assigning Team B the property right meant that Team B had a legally established title to the sole ownership of a scarce resource. The actions of Team A were infringing that property right.

16 Ask the students what they think would happen if Team A were to have the property rights and if Team B had to pay one point for each sheet of clean paper it receives from Team A.

The answer here, perhaps rather surprisingly, is that society is still better off: this is the point of Coase's Theorem.

You can choose to have a third round to test this but Team A may be fed up with calculations by now (you could swap the jobs over, of course).

17 Ask if there are any other ways externalities can be reduced, eg by assigning property rights to an agency like the National River Authority, or have the government impose fines and pollution limits. Auctioning pollution permits might also be a solution.

18 Give each student a copy of the economic theory sheet and the news article, or use your own current example. Ask if Coase's theorem could help solve the problem and if it would be a practical solution. Remind them that the teams were not in competition and that it does not matter who has the property rights - Team B will still be better off whoever has the property rights. Society as a whole will be better off and there will be less pollution.

To be successful, you need to rehearse this game. With repetition you will gain experience and confidence and can amend the game. For example, in Round 2 some members of Team A might ask to use calculators so that they can save paper. You could agree to this, but charge a fixed sum of points to the team for this use of advanced technology. This is akin to power stations spending money on fitting clean air scrubbers to their chimneys.

1Economics of welfare, Macmillan 1932

2 "The Problem of Social Cost," Journal of Law and Economics, October, 1960

Copyright Economics and Business Education Association Summer 2002
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