How NOT to Teach the Free-Rider Problem
A couple of years ago, I was trying to illustrate the following point in my intro economics class: even if the class as a whole might value having me shave my head and beard, the transaction costs of getting together to pay me to do so would be so high that the transaction would never occur.
"For example," I opined, "Suppose each of you — what are there? 200 of you here today? — suppose each of you valued seeing me with my head and beard shaved at, say, 50 cents each. That would mean that as a whole, you, as a class, would value seeing me completely shaved at $100. But if you tried to collect that money from each and every one of you, you couldn't possibly do so because some of you would be free riders — some of you would say it didn't matter to you whether I shaved even though you would get some value from seeing it. You would try to get others to pay your share so you could take a free ride on their activity."
I then carried on with the lecture about the Coase Theorem [named for the Nobel Prize winner who devised it, Professor Theorem] and its applications. About three minutes later, a student raised his hand, and I called on him.
"We've raised the hundred dollars!" he said. Little did I know that there would be six students who, collectively, valued my shaving at $100.
Here are some photos:
For more, see here. My colleagues, my friends, even my sons didn't recognize me.
"For example," I opined, "Suppose each of you — what are there? 200 of you here today? — suppose each of you valued seeing me with my head and beard shaved at, say, 50 cents each. That would mean that as a whole, you, as a class, would value seeing me completely shaved at $100. But if you tried to collect that money from each and every one of you, you couldn't possibly do so because some of you would be free riders — some of you would say it didn't matter to you whether I shaved even though you would get some value from seeing it. You would try to get others to pay your share so you could take a free ride on their activity."
I then carried on with the lecture about the Coase Theorem [named for the Nobel Prize winner who devised it, Professor Theorem] and its applications. About three minutes later, a student raised his hand, and I called on him.
"We've raised the hundred dollars!" he said. Little did I know that there would be six students who, collectively, valued my shaving at $100.
Here are some photos:
For more, see here. My colleagues, my friends, even my sons didn't recognize me.
Category: Economics Posted on
Saturday, January 14, 2006 at 1:51am
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But now my wife - who has never seen me without my beard - is digging around in her purse for loose change...
Now, all you need is a leather vest and a tattoo (or, is it just a leather vest?) ;-)
Me likey.
Thank you, everyone, for your encouragement, and your comparisons with other famous skinheads (I favour the comparisons with Henry Miller, myself), but neither I nor Ms. Eclectic likes the look. It isn't coming back.
And no, Rebekah, no tatoos; I have several vests, but for the most part they tend toward tweed, not leather. Then there's this one that I wore during an acting gig as a male porn star (pretending to be one, not really in a porn flick) that I had last year.
Read about Cygnus Solutions to see how this can be a viable business model for producing easily copied products (e.g., software) without resorting to government-enforced intellectual propery rights.
The extension from year to year until you find the equilibrium price is left as an exercise for the student.
Regards,
Bill Drissel
Don't feel badly about your pets not recognizing you. I left my dachshund puppy with a neighbor for vacation, and when I went to pick her up, she gave me a kind of "Who are you?" look as I leashed her up to go home. She finally got it about halfway, and went totally nuts with joy when she saw my wife.
Stupid dog.