Monday, February 25, 2008

Speed or Brawn?

Two of the perennially top-ranked college hockey teams in the country are Harvard and Yale. While tending to be alike in their national rankings, they differ greatly in their playing style. Harvard consistently opts for fast but small players while Yale fields slower but brawnier skaters. This difference in playing styles has persisted over the past several decades despite coaching changes and turnover in player personnel. What accounts for the difference? Explain in terms of economic analysis.

No winner this week. According to Browning and Zupan (1999; p187), the difference is due to the size of the hockey rinks. "Not all hockey rinks are the same size. Harvard's rink is large and this serves to increase the marginal product of speedy versus brawny players--there is more room to play a fast-paced version of hockey. By contrast, Yale's rink is smaller and thereby favors brawn over speed. Since there is less room to run, it becomes easier for large players to hunt down smaller opposition and beat it to a pulp." Indeed, Harvard even keeps their rink much cooler than Yale's so that the ice is faster to skate on, thereby benefiting their players.

Monday, February 18, 2008

How do you get people to tell the truth?

A restaurant has a staff of 10 servers. The servers have all stored their daily tips in their own personal tip jar located in the restaurant's kitchen. An earthquake occurs and all the tip jars are smashed and all the tip money is mixed together. The restaurant manager gathers up all the money and wants to return it to the servers, giving each the amount of money to which she is rightfully entitled. Each server knows how much money was hers, but nobody knows how much belongs to anybody else. Obviously, each server, if asked, will exaggerate her fair share. How can the money be returned to the rightful servers?

Monday, February 11, 2008

A Bluffing Farmer?

Consider the following statement from a corn farmer to his workers:

"The price of corn is very low this year, and the most I can get from the crop is $55,000. If I paid you the same amount as I paid you last year ($50,000), I'd lose money, because I also have to worry about the $30,000 I paid three months ago for seed and fertilizer. I'd be crazy to pay a total of $80,000 to harvest a crop I can sell for only $55,000. If you are willing to work for half as much as last year ($25,000), my total cost will be $55,000, so I'll break even. If you don't take a pay cut, I won't harvest the wheat."

Is the farmer bluffing, or will the farmworkers lose their jobs if they reject the proposed pay cut? Explain.

Congratulations to Yang Di for providing the first, complete, answer to the above dilemma. Read the comments section to see Di's reasoning.

Monday, February 4, 2008

Economics in a Laboratory?

Experimental economics involves the application of laboratory methods as a means of understanding human behavior. By conducting laboratory experiments, economists are able to evaluate competing theories of individual and market behavior where naturally occurring data is absent or limited. Arguably the first use of a market experiment occurred in a graduate economics class involving a teacher (who was a well-known economist in the area of industrial organization) and a student (who would later be a pioneer in the field of experimental economics). Can you name the teacher, student, the college, and the approximate year wherein the first recorded use of a classroom experiment in economics took place?

Congratulations to Lang Zhao for correctly identifying that Edward Chamberlin of Harvard University conducted the first recorded market experiment in 1948. A participant in that experiment was Vernon Smith, who later went on to win a Nobel Prize in Economics for helping to pioneer a new branch of economic analysis known as experimental economics.