ICES Brown Bag for April 7

Events, Seminars | March 31, 2016

Join us for an ICES Brown Bag Lecture, featuring Charlie Holt.

Prof. Holt, of the University of Virginia, will discuss his paper (co-authored with Grace Finley and Emily Snow) The Welfare Costs of Price Controls and Collusion in a Web-based Class Experiment (Abstract). The talk will take place on Thursday, April 7th, from 12:00 to 1:00pm, in room 5075 of the Metropolitan Building, Arlington campus.

Coffee and dessert will be provided.

Please visit the Brown Bag Schedule to learn more about the Brown Bag series.

Abstract

This paper guides the instructor through the process of running a classroom market experiment with and without price controls. The web-based setup is quick to execute and easily scalable for class sizes up to 500. The design is selected to illustrate two effects of price controls: an “output effect” as measured by the standard welfare loss triangles, and an “imperfect selection effect” that arises when controls prevent price from excluding high-cost sellers or low-value buyers. The class discussion of welfare losses is facilitated by the approximate linearity of the induced demand and supply functions, with associated surplus areas that are exactly equal to those determined by straight lines that connect the relevant intercepts, which avoids explicit consideration of “steps” in those curves. Although not discussed explicitly in standard textbooks, the imperfect selection effect can be quite large, e.g. twice as large, as confirmed by class experiments. The class experiment also permits an analysis of the predictions of those slope/elasticity effects made by Collander, Gaastra, and Rothschild (2010), and an extended discussion of non-price “rent-seeking” activities.

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