Negative Externalities & Corrective Taxes (Module Guide)

MobLab divides students into 12-person markets (6 buyers, 6 sellers) in each of the three sessions in this module (one for practice and two for real). In every round of trading, a seller can sellone at a timeup to three Robot Dogs, and a buyer can buyone at a timeup to three Robot Dogs. The

MobLab divides students into 12-person markets (6 buyers, 6 sellers) in each of the three sessions in this module (one for practice and two for real). In every round of trading, a seller can sell—one at a time—up to three “Robot Dogs”, and a buyer can buy—one at a time—up to three “Robot Dogs”. The value of a Robot Dog to a buyer decreases across his three units, while the seller’s cost increases across her three units. While these canines have many great qualities their barking creates a nuisance cost to the community of \$2.40 per dog transacted. This per-dog nuisance cost reduces each person’s payoff by 20 cents.

In the absence of externalities a seller with Seller Cost \$C who sells an Robot Dog for price \$P earns a payoff of \$P – \$C, and a buyer with Buyer Value \$V who buys a Robot Dog at price \$P will get profits of \$V – \$P. A student’s payoff for the round is the summation of her payoffs from each of her transactions. However, in this setting there are externalities. Therefore, the total payoff will be the sum of surplus from all transactions minus the nuisance cost. This nuisance cost is \$2.40 per dog and is shared equally by all 12 market participants. Therefore, Q*(\$2.40/12)= Q*(\$0.20). Without intervention equilibrium price is \$3.64 and there are 15 units transacted. With a per-unit tax equal to the social cost (\$2.40) the equilibrium price is \$5.27 and there are 7 units transacted.

  • Run the Open Session for Students Survey
  • Have students login
  • [Minutes 0-5] Review instructions, ideally by projecting the video instructions.
  • [Minutes 5-8] Run the Instruction Comprehension Survey
  • [Minutes 8-11] Run the Practice Round Game
  • [Minutes 11-16] Run the Two-Round Game without Intervention
  • [Minutes 16-19] Reflection Survey
  • [Minutes 19-24] Review the Results
  • [Minutes 24-29] Run the Two-Round Game with Corrective Tax
  • [Minutes 29-32] Review the Results
  • [Minutes 32-35] Run the Final Reflection Survey
  • [Variable] Open Discussion
  • [Variable] MobLab Experience Survey
    • At the end of the module please administer our MobLab Experience Survey. You can set the game duration to be 24 hours which allows students ample time to complete the survey outside of class.

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