Wealth Distribution and Imperfect Factor Markets: A ... - Mihaylo Faculty

Wealth Distribution and Imperfect Factor Markets: A Classroom Experiment Author(s): Denise L. Stanley Source: The Journal of Economic Education, Vol. 32, No. 4 (Autumn, 2001), pp. 344-355 Published by: Taylor & Francis, Ltd. Stable URL: http://www.jstor.org/stable/1182882 . Accessed: 22/08/2013 17:10 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

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Economic Instruction In this section,theJournalof EconomicEducationpublishesarticles,notes,and communications describinginnovationsin pedagogy,hardware,materials,and methodsfortreatingtraditional subjectmatter.Issuesinvolvingthe wayeconomics is taughtareemphasized. MICHAEL WATTS,Section Editor

and Distribution Markets: Factor Imperfect A Classroom Experiment Wealth

Denise L.Stanley Abstract:The authorpresentsa simple exercise to demonstratehow initial property distributioncan affect final wealth patternsin developingareasof the world. The simulationis a variantof the Monopoly boardgame in which studentsrole play different members of a marketin which they each face differentrules of credit access and salary patterns.The propertydistributionand new mortgage rules reflect the reality of many developing areas. The simulationcan be completed in one full class periodand has provensuccessful in makingstudentsmore sensitive to wealth distributionissues. Studentshave suggestedseveralvariations of this simulationto make it applicableacross more settings. Key words: marketinstitutions,Monopoly,wealth distribution JEL codes: A22, D31, 017 the"American Monopolycanbe considered pastime"of boardgames.Itis thegame realestate.The situationinvolvesperfectcompeticonsistingof equalopportunity tionwhereeveryoneis giventhe sameamountof moneyandhasthe sameoptions of buyingandsellingland.Whatif, however,theplayerswerenotequal? Studentessay Undergraduate students have little exposure to the dynamics of rural economies in developing countries or the general determinantsof personal Denise L Stanley is an assistantprofessor in the Departmentof Economicsat CaliforniaState University,Fullerton (e-mail: [email protected]).The author appreciates the assistance of all the studentstakingEconomics323 at the Universityof Tennesseebetweenthe spring 1996 andfall 1998 semesters,as well as the helpful commentsof Michael Carter,Jon Jonakin,and StephenStewart.

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wealth distribution.Providing an understandingof the importanceof land and wealth distributionis an importantgoal of courses in development,regional, and public economics. Visual media may complement lectures, but few exercises involving studentparticipationhave been designed. The incorporationof literary works in undergraduateeconomics classes is increasingly popular (KishGoodling 1998), but boardgames have not yet been tapped. In the spirit of the Starpowersimulation(Humphrey1970; Williams 1993), I offer an exercise using the Monopoly boardgame as a means of illuminatingthe dynamics of wealth distributionto students.The growthof the Web has led to a renewed interestin Monopoly and the best strategiesof play (Collins 1998), and other disciplines have used this boardgame as a teaching tool (Knechel 1992). Monopoly can also demonstrateseveral economics principles. In the original game, the principlesof mutuallybeneficialmarketexchange and monopoly profit are present.Although much of the play focuses on the fixed rentalpayments for short-termpropertyuse, the monopoly aspect of propertyownershipalso creates differentmarginalreturnsfrom an extra propertytitle. Player equality is an importantunderlyingassumption.Winning the game, in terms of accumulating the most final wealth, stems from player luck and skill. All players startwith the same salaryand mortgagerules;in the shortversion,propertytitles may be divided equally to speed up play. My classroom simulationis a variantof the Monopoly boardgame thatimposes different startingpoints and factor access to facilitate the teaching of upperlevel economics concepts. Studentsplay the roles of low-, middle-, and upperranked members of a society in which propertymatters.The game is fun and serves threepedagogicalpurposes.First,the effect of initialendowmentson final wealth distributionis highlighted.Studentslearn that in some societies starting points matterbecause wealth trajectoriesmay be path dependent.'Second, students gain a better understandingof how noncompetitivemarketsoperate.The reality of differentialcapital access (common in many poorercountries,as well as some regions of the United States) is a vague concept for studentsthat is made real when they must follow a statedrule along this line. This differentialaccess to credit and emergency funds can determinehow a player reacts to bad luck, and, ultimately, how shocks have permanentwealth implications for the poor. Finally, the high social costs of monopoly are made more evident in the simulation. Here, the monopoly rents charged by one player often lead another into bankruptcy. Following the presentationof the simulationrules and design, I introducethe structureof endowmentsbasedon typicaldevelopingcountryrealities.Then I discuss how studentshave integratedthe simulationexercise into their learningand how studentshaveevaluatedthe simulation.Finally,I suggest some improvements and extensions thatmay be useful for futureplay and instructionalflexibility. THE SIMULATION The simulationinvolves assigning studentsthe role of a L (low), M (middle), or U (upper)player,with specifiedendowmentsand special rulesfor the course of Fall2001

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play. Studentsplay the game aftera series of lectureson propertydistributionand land reforms in developing countries. Studentsare given the original Monopoly rules, a typical game sheet to complete, and a simulationoutline in a class or two prior to the actual day of the exercise (see AppendixesA and B). I sort out the propertytitles and startingwealth in the game boxes priorto class, and I normally open the class with introductorycomments to review the rules. Studentsstart the simulationdirectlyby rolling the dice to assign playertype. Generally,I allow four studentsto play per table, and I assign studentswith the lowest roll as the U player.A class size of 40 studentsplaying at 10 tables is the maximumfor one instructorto monitor;however,largernumbersmay be possible with on-line play.2 Play proceeds along the lines of the normal Monopoly game, with students landing on properties, paying or receiving property rent, and accumulating wealth. I move among the differenttables to answer questions and help students fill out the game sheets. In particular,students must be careful to receive the assigned salary levels upon passing GO and follow the differentrules for mortgage creditaccess. The class periodis divided into roughlythreesections of play: a section with the initial endowmentsand regularpropertypurchases,a section in which the remainingtitles are availablefor auction, and a final section of an "openland market"in which playerscan swap and sell theirpropertiesunderany negotiatedterms. Studentsplay until one person goes bankrupt,after which they tally up their final wealth levels on the back of the game sheet. I run the simulation during a 75-minute class period, and in nearly all cases, the students have finished playing duringthis time. Game performanceis only partof the nonlinearpayoff structure.I base the primary component of the students' simulation grade upon their understandingof the dynamics involved.This involves a writtenexercise guided by three underlying questions (Appendix A). The students tend to play competitively from the start, and rationalself-interestto maximize wealth is evident. I remindstudents to treateach game turnas a real markettransaction,and I announcea rewardto ensure they take the game seriously. I make extra-creditpoints available to the studentswho are the highest L, M, or U playerin the class. Many L studentsrealize they cannot win against the other players at their table, but by rankingstudents across the tables by relative performance,I instill an incentive for worthwhile play. Although the extra-creditpoints are based partiallyon luck, a strong level of skill is still important.3 NEW RULES FOR ECONOMIC REALISM I describe the way I assign property,salary,and credit to the differentplayers in Table 1. The changes explicitly demonstratehow different institutionsinfluence how players can participatein the market.The table can reflect both internationaland domestic settings. Given the end of land reformin many developing countries,ruralpeople are increasinglyparticipatingin these types of imperfect land marketsfor the acquisitionand sale of property.4And some U.S. real estate marketsexhibit the patternof Table I when credit access is variedalong racialor gender lines. 346



TABLE 1 Initial Player Endowments

Cash

Type

Property

Land value

Total wealth

Credit access

Salary

L-lower

375

Mediterranean,Vermont, St. Charles

300

675

50

No bank mortgages

L-lower

375

Baltic, Oriental,States

300

675

50

No bank mortgages

M-middle

750

Virginia,Tennessee,New York, 1,090 B&O and Penn RR, Electric Co.

1,840

100

Mortgage from bank at 1/2 value; interest 10%/turn

U-upper

1,500

Connecticut,Illinois, Marvin Gardens,Pacific, Penn, Park Place, Broadway,ShortLine RR

2,210

3,710

200

Mortgage rule as original game (1/2 value)

Unsold public lands: St. James, Kentucky,Indiana, Atlantic,Ventnor,N. Carolina, Waterworks,Reading

1,790

Bank/state

TABLE 2 Latin American Land Distribution by Farm Size (percentage), early 1970s Farmsize Lowest class (< 5 hectares) Farms Area Highest class (> 1,000 has.) Farms Area Gini coefficient

Brazil

Colombia

Costa Rica

Guatemala

Mexico

26.8 1.3

59.6 3.7

42.8 1.9

87.4 18.7

51.2 0.6

0.8 29.5 0.84

0.3 30.4 0.86

0.4 25.1 0.83

14.9 26.0 0.85

2.2 76.1

Source: Wilkie (1995).

The U player in the class simulationfollows the originalrules of Monopoly as a typical upper-middleclass marketparticipantin the United States. As in the shortenedversion, some propertyinitially goes to this player; I give him or her good propertiesand an initial monopoly.The middle-classplayer also gets some propertyand a near monopoly,a decent salary,and mortgageaccess (with interest). The L players startwith the poor quality properties,a lower salary,and no credit access. Do these changedrules reflect nearreality?The differentpropertyassignments clearly show inheritedwealth and how different classes of society possess different quantitiesand qualities of land. The unequaldistributionof land in devel347

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oping countriesis close to that in Table 1, and Table2 providesevidence of land distributionin several Latin American countries. In my variationof Monopoly, the initial distributionof privatewealth among the four players at a table gives a Gini statistic of 0.37, as the ratio of the wealthiest to the poorest was 5.2.5 Thus Table 1 actually is less extreme than the real-life distribution. The different salaries reflect player earnings. Although human capital is not explicitly a partof the game, educationlevels often vary by endowmentclass, so poorergroups earn lower salaries. In many developing countries,school enrollment ratiosare positively relatedto income, with higherrates of illiteracyamong the poorest groups (Gillis et al. 1996, 254). The propertyrentsreflect the differentearningpotentialsof the land.The rents in Monopoly are relatedin partto location. Higherearningsaccrue to properties located in the yellow, green, and blue color areas.This is analogousto developing countryand agrarianfactormarkets.Landrentsand purchasepricesare higher in areas with more profitablecropping opportunities,such as new seed varieties or export activities. But only some rural people, usually those with systematicallybetteraccess to workingcapital, opt to invest in these lands. Finally,I assume rationedmortgagecredit access. This concept is perhapsthe most difficult for studentsto understandbecause they often assume that anyone walking into a bank should be able to get a loan. But I emphasize in lecturethat sometimes there may be outright discriminationin lending practices, or bank officers are unwilling to lend to poorer borrowersbecause low repaymentrates are assumed (correctlyor incorrectly).Thus factor marketsare "size-sensitive," and the poor often get credit at higher interestrates from a secondarymarketor a moneylender.Actual lending trends in ruralIndia, somewhat parallelto those assigned to players in Table 1, are presentedin Table 3.6 Chanceand skill still partiallydeterminewealth in this Monopoly game. In the original game and in my variation,luck is embodied in the unpredictableroll of the dice. The dice roll determineswhich propertiesplayers land on to pay rents or make or receive otherpayments.The obvious questionaboutthe realismof the dice is usually something like "Why would a poor peasant ever stay at Park Place?"Thus it is necessary to link the stochastichigh-rentevent to, say, real-life family medical expenses. Alternatively,the bad luck may be anotherunforeseen expense such as the purchaseof chemicals to deal with crop blight. A fortuitous TABLE 3 Rates of Interest by Land Wealth of Borrower, Rural India, 1985

Value of land assets 0 0 < 10,000 10,000 < 50,000 50,000

Weightedaverage nominalrate of interest Konur Gokilapuram 44.9 27.9 24.5 16.9

45.4 52.2 36.7 24.2

Source: Swaminathan(1991).

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roll may be seen as winning a lottery or having the good luck of avoiding disastrousevents. The poor tax and hospitalCommunityChest cardsdirectlycorrelate with these events. By the end of the game, students learn that these temporary income shocks often have permanentwealth implications. STUDENT UNDERSTANDING AND ECONOMIC LESSONS General lessons from the game are reviewed in a class discussion period following the simulationexercise. Frommy initial tabulationsof the studentresults, I present a diagram showing how each table performedand the dynamics of wealth across the turnsof the game. Studentsair their feelings about the different propertyendowments and mortgage credit access, and many state that, of course, "Therich get richerand the poor get poorer."Studentsalso discuss their playing strategiesand which bad luck event cost them money or led to distress sales of propertyand bankruptcy. I have played the game across five semestersbetween 1997 and 1999 at a large public universityin the southeasternUnited States. The studentbody at the university is young, middle class, and primarilyCaucasian,with an approximately equal numberof men and women and a handfulof minorities.Yet thereare many first-generationcollege studentspresentin each class. The demographicprofile of these students may have influenced the outcome, yet these learning experiences are similar to those observedin othersettings.7 Results of play during the five semesters were as follows. Students assigned the role of upper players nearly always increased their wealth, whereas those assigned as lower often went bankruptor saw a loss of wealth.Across all the students in a class, the final Gini coefficients of total wealth have been between 0.52 and 0.59, showing a worsened wealth distributionacross the participants(compared with the starting0.37 statistic). But interestingexceptions have emerged. Some U players exhibited a degree of altruism (or perhaps a desire to continue the fun of playing) by wanting to make loans to the cash-strappedL players. I have dealt with this by reminding studentsto think throughthe consequencesof theirchoices in terms of their success at winning. The L players do not give up easily and have exhibited some cooperativebehavior.Similar to the players in Williams' (1993) simulation,the lower players at a table paired up and merged their meager resources in at least one instance each semester. This tended to even out the wealth distributionat these tables, and in two cases, the middleM playerended up going bankruptfirst. In one semesterof play, five of the lower-rankedstudentsactuallyincreasedtheir wealth by tradingpropertiesto get a monopoly.The final outcome of the middle players toward wealth accumulationor poverty was split fairly evenly. On four occasions, the upper-rankedplayers lost money as propertieswere transferredto the middle players. In the gradedessay, I asked the studentsto describe the plays that occurredat theirtable and theirfeelings aboutthe game for evaluationpurposes.The students often link the initial propertyendowments,credit access, and bad luck events (ratherthantheirdifferentialsalarylevels) to final wealth.But as one studentwrote, Fall2001

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Skill also cameintoplayin the game.The skill I am speakingof was in property andthe negotiations thattookplacebetweenthe players.Playershad management to realizewhichpropertiesbest fit intotheirportfoliosandbid whattheycouldto obtainthemduringtheauctionperiod. A readingof all these essays shows that the studentslearnedabout the reality of developing areas and the dynamics of wealth distributionthroughthe simulation. As one senior commented,"Before playing the game, I did not believe initial endowmentshad a greatimpacton the outcome of the game; afterplaying the game, I realized that they had a large impact." Students also noticed how propertyrents are determined and how poverty made the L players less prone to follow a risky strategy.Many studentsrecognized that the lower-qualitypropertyof the poor earnedless rent than the property of the rich. They attributedthis to the initial propertyprice, the location of the propertyon the board,and the fact that the poor could rarelyaffordto make productivityinvestments(i.e., build houses). One studenteven identifiedhow a propertymonopoly imposes higher prices and social costs: By owninga completecolorgroupyoubecomeliketheownerof a largeestate,thus Thisis one reasonwhyit is betterforthe you candoublethe renton all properties. "smallfarmer"if the land is subdividedwith separateownersfor each section becauseit is cheaperthanpayingthemonopolyprice. Studentswho ended up as the L players experiencedthe greatestempathyfor the limited cash flow and inadequaterisk managementmechanismsof poor people. They recognized how the standardMonopoly strategy of quickly making risky propertyinvestmentswould not be availableto the poor because they could not chance being strappedfor cash. For instance,one studentquestionedwhether a hotel investmentwould be wise for a poorerplayer with land at a lousy location.8 The U players could take on more risk in buying more hotels and thus received higher returnson average.This means, as one studentnoted, that players' marginalrates of substitutionand effective land prices varied by their cash flow constraints. Overall student evaluations of the game have been positive, yet some have questioned its relevance for U.S. settings. Most students held to their earlier belief thatall "players"in the United States do get mortgagecreditaccess. Other students felt that propertyincome is not an importantsource of wealth in the United States, so that "winning"a game would be more related to salaries and humancapital endowments.Perhapsmore important,the Monopoly boardgame is often viewed as a zero-sum game in which one player wins at the expense of all others.9Whether this characterizeswealth accumulationin any society is a source of contention. But the lessons about how the essential factorsof starting property,salary, and credit access affect wealth distributionremain important contributionsof the Monopoly game. EXTENSIONS I suggest instructorsalterthe simulationto make it an effective localized learning tool for a variety of classes. Instructorswill have to analyze how the class 350



composition may affect studentstrategiesand playing times. More diverse classes may come up with differenttactics, and the context of the game as an exercise should be clear so that studentsdo not feel the new rules are meant to simplify any realities from their own lives.'0 My students have suggested extensions of the game, including changing the initial endowmentsof the players,addingnew taxes, and encouragingmore player cooperation from the beginning. The game's analogy of the limited credit access received by poor people was particularlystrong, and there are numerous variants of the mortgage lending rules that can be tried. These changes could enhance the learningvalue of the game by directly linking it to a currentevent or a setting familiarto students. Currentlythe Monopoly game is set within a partialequilibriumof a small economy. The simulationaddressesthe issues of credit constraints,salarydifferentials, and propertyendowments.The relative prices (land rentals,salaries, and interestrates)do not change.Yet this perhapsmisses an importantcomponentof inequalityin which new patternsof wealth distributionconstantlyshape the equilibrium prices players face. The ultimate long-run patternof wealth inequality may be reinforcedor reduced in comparisonto that observedafter the one period of Monopoly play. A growing literatureabout the dynamics of long-runasset inequalityincorporates a generalequilibriumframework.On one hand,Alesina and Rodrick(1994) found thatinitialinequalitiesmay give rise to endogenoustax policies (andchanging factorprices),which then increaseor decreaseeconomic growthrates.However, theirmodel lackeda dynamicinterconnectionbetween wealthdistributionand growth.On the otherhand,the model developedby CarterandZimmerman(1999) produceda short-runspike in inequalitybut modest decreases in land prices as inequalitydiminishedovertime.The resultsaredependenton the model structured by endogenousasset accumulation,imperfectlaborand capitalmarkets,and relative price changesconsistentwith full intertemporalrationalexpectations. Thus an even more-advancedvariationof Monopoly would consider endogenous prices and institutionalchange. In the original Starpowergame (Williams 1993), leaders are allowed to rewritethe rules of the game afterthe thirdround. This would mean one groupof playerschanging the mortgageaccess and salary levels after a roundof Monopoly. Instructorsmay find it necessary to extend the exercise across two periods in which the rules in the second adjustto reflect the wealth distributionat the end of the first period of play. Ideas from the literatureoffer other ways to explore the intertemporalnature of wealth distributionin the Monopoly game. In each case, the instructormight benefit by using a laptopcomputerin class to simultaneouslycalculatechanging wealth patterns.First, the relative price of capital faced by the differentplayers could be adjusted to reflect the growing amount of money circulating in the board economy. The instructorcould estimate the percentage increase in total wealth and reduce the interestrates accordingly.Such a change might serve to equalize wealth distributionover time. Second, the students could vote on an appropriatecapital tax structureto be in effect for the next roundof play. Voting rights might be proportionalto wealth levels at the end of the first round.AlterFall2001

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natively,the instructormight follow Alesina and Rodrick (1994) and rely on the tax rate preferredby the median voter. Finally, the relative price of labor could adjust intertemporally.Propertyasset accumulationrepresentsthe primaryform of savings available to the players of Monopoly. Yet some models of dynamic inequality(i.e., Galor and Zeira 1993) allow educationalinvestmentsthatpay off in future periods. Students in the Monopoly simulation might be offered the opportunityto save a certainamounteach roundfor educationwith the assurance that salary levels would be higher in future rounds of play. The studentswould probably be very interested in discovering whether such sacrifices of present cash flow for futurereturnsindeed lessen long-terminequality. CONCLUSIONS Explaininghow differentrules and endowmentsaffect marketoutcomes in settings unfamiliarto students is a dauntingtask for any teacher.Studentsusually are familiar with popularboard games, and these games offer simulatedmarket experiences that may be used in the classroom setting. I have shown how the Monopoly game, a perennialfavorite,can be adjustedto incorporatesubjectmatter related to wealth distributionand the dynamics of economic development. Several more general economic principles are embodied in the game, and the simulationcan be adjustedto meet the needs of each teaching environment.The simulation is intended to simplify the complex dynamics of wealth distribution and allow studentsto "walkin the shoes" of poor and wealthy playersin a developing area.Althoughit does not perfectlymatcha foreign or domestic real estate market, it does highlight aspects of the institutionalframeworkguiding these markets.Extensions of the simulation suggest that students may be able to use the game to explore the long-rundynamics of wealth distribution. Noncomputerizedexperimental learning techniques such as this require an upfrontinvestmentof the instructor'stime (in game piece set-up and game-sheet printing).The experimentmust be accompaniedwith a fair amountof discussion and reflection. Rule changes must be clarified early on, but the exercise can pay off. Most studentshave respondedthat the role-playinghas helped to bridge the gap between theory and reality.The next step is to extend this type of simulation to settings from the students'own backgroundsto help them explore the processes of wealth accumulationin foreign and domestic settings. APPENDIX A: PRE-EXPERIMENT HANDOUT

This is an experimentin the economicsof landmarketactivation,to understand how differentinitialendowmentsandthe factormarketimperfections commonin developing countriesimpactwealthaccumulation andincomedistribution. Theinstructions aresimple;however,if you havequestions,pleaseask. Forthisparticular therearefourtypesof playerswithdifferentendowments experiment andfactoraccessrules.Thisplayerdifferentiation is a twiston theoriginalParkerBrother's Monopolyboardgame.In the upperleft-handcornerof yourrecordsheetyou will finda U, M, or L to designatewhichplayeryourepresent; theinformation includeswhat salaryyou earneduponpassingGo, whatinitialproperties you own, andyourabilityto mortgagethepropertyfor loans. 352



The basic rules of the original Monopoly game are attached.The goal is to acquireas much propertyas possible so that you may charge other players rent (and avoid paying rentyourself). Players also may buy unallocatedpropertiesif they land on the spot. Once all propertiesof a certaincolor are acquiredby one player,that playerhas a local monopoly on that section and may constructhotels; these improvementsthen triple and quadruple the rent. Being chargedrents can give a player cash shortfalls;to acquiremore ready rentcash a player must either mortgagepropertyor acquirecash by other means (private land sales or barteringwith anotherplayer for a "moneylender"loan, say at 10 percent interest per turn).Eventually a player without cash will go bankrupt,at which point the game ends. To speed up the process, unsold lands will be auctionedoff afterthe first 15 minutesof play. After 45 minutes of play, players will be allowed to swap propertiesamong each other (under bargainedterms) in the aim of getting color monopolies. Remember that when a player has all propertiesof a certaincolor, the rent doubles on each propertyand owners of a color group have the right to build houses and hotels there. Note your play after each role of the dice (where landed, rent paid/received,salary, loans, etc.) on the attachedsheet. Rememberthat your primaryobjective is to maximize wealth. Partof your exercise grade will be based on how much of a percentageincrease in wealth you acquire (compared to other players of your given starting point). The wealthiest player in the class of your grouping will get an extra credit bonus. The other partof your grade will be based on your write-upof the game. In your analysis,comment on (1) the potential of land marketsin developing countries to worsen or lessen income distributionproblems, (2) the role of unequal propertyendowmentsand luck (as well as differencesin bargainingskill and creativity)in affecting marketopportunity,and (3) the relevanceor lack of relevanceof the game for understandingland marketsand real estate transactionsin a setting you are familiarwith in the United States (or your home country). Use actual numbersfrom your plays and comment on your feelings as a U, M, or L player with the new rules of the game. APPENDIXB: GAMESHEET PLAYERTYPEM: EARNINGSANDWEALTHRECORDSHEET Allocation:

InitialCash = $750

Properties: New York, Tennessee, Virginia, Electric Company,B&O Railroad,Pennsylvania Railroad

Salary= $100 each time you pass Go CreditAccess = Mortgagepropertiesfor 10 percentinterestrate;interestpaideach time it's yourturn. Other Otherside Dice roll, Rent paid/ payment Salary transactions End where land received (cards) collected (loans, property) wealth Turn 1 Turn2 Turn3 Turn4 Turn5 Turn6 (Continued) Fall 2001

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Turn7 Turn8 Turn9 Turn 10 Turn 11 Turn 12 Turn 13 Turn 14 Turn 15 Turn 16 Turn 17 Turn 18 Turn 19 Turn20 NOTES 1. The concern about path dependence follows because here the final levels of wealth and income distributionare determinedin partby the initial allocation of propertyrights.This is a standard finding in imperfect marketsettings in which equity and efficiency outcomes cannot be separated (Bardhan1989, 5). 2. The main cost of the exercise to the instructoris the purchaseof the Monopoly game sets before class. For a class of 40 students,the fixed cost is around$120. However,a nonofficial DOS version of Monopoly can now be downloaded(Anonymous 1998).This computerizedversionallows up to six players per table and would allow the instructorto change the rules of the game (such as the startingcash, salary for passing Go, and communitychest cards). The official CD-ROM version of Monopoly allows for multiple playersbut no rule changes. 3. Stodder (1998) has critiquedthe use of grades as partof the game payoff to students.The concern of how relativerankingcan skew studentplay is most relevantfor games with a public good problem.Because the Monopoly game is essentiallya zero-sumgame, the strategyalterationmay be minimized. I have found that despite the competitivenessinstilled by ranking,some cases of cooperationhave emerged.Additionally,in evaluationsof the game studentshave complainedat my suggestion of penalty points for low rankingsbut have accepted bonus points for high rankings. Instructorsmay consider the alternativeof offering winnersa free meal or some other prize in lieu of extra-creditpoints. 4. Marketsare imperfectbecause the prices for the relatedfactorsof capitaland laborare size-sensitive. Thus economic developmentpolicy changes towardland marketactivationhave generated controversyas to how propertywill be transferredbetween richerand poorerparticipantsin the market(Carterand Mesbah 1993). 5. Including the unsold public lands of the "state,"the initial distributionof land area (property titles) in the new game gives a Gini coefficient of 0.21, and the distributionof total wealth gives a Gini of 0.44. 6. Bhaduri(1973, 15), provides similar data on the patternof credit disbursement.He finds that

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poorer groups rely on moneylenderswhereas wealthier groups can acquire low-interest credit more often throughcooperativesor governmentagencies. 7. I am gratefulto one anonymousreferee who tried the simulationin a class with a very different studentcomposition.This refereeobserved somewhat similaroutcomes, althoughsome students exhibited more charitybehaviorso that playing times ran longer. 8. As one studentstated, "It was not profitablefor me to buy propertybecause the only propertyI could affordyielded very small rents,which meantthe only way for me to make money back was if the other players landedon that space about 15 or 20 times, which was highly unlikely." 9. Although the rich players' winning the game may appear as a zero-sum transferacross class groups, I found that some of the U group's wealth increase may be attributedto growth of the game economy. The total money in circulation(the gross domestic product[GDP] of each table) did increase at two-thirds of the tables. This reflected the payout of salaries and the virtual absence of taxationamong the players. 10. I appreciatethe comments of one anonymousreferee in this regard. REFERENCES Alesina, A., and D. Rodrik. 1994. Distributivepolitics and economic growth. QuarterlyJournal of Economics 109 (May): 465-90. Anonymous. 1998. Far too good boardgames. DOS-baseddownloadableversions of popularboard games availableat: www.fartoogood.com/monopoly/index.html. Bardhan,P., ed. 1989. Alternativeapproachesto the theory of institutionsin economic development. In The economic theory of agrarian institutions.Oxford:Clarendon. Bhaduri,A. 1973. The economic structureof backwardagriculture.Oxford:Academic. Carter,M., and D. Mesbah. 1993. Can land marketreformmitigatethe exclusionaryaspects of rapid agro-exportgrowth? WorldDevelopment21 (July): 1085-1100. Carter,M., and F. Zimmerman. 1999. The dynamic cost and persistence of asset inequality in an agrarianeconomy. Universityof Wisconsin, Departmentof Agriculturaland Applied Economics, WorkingPaper416, December. Collins, T. 1998. Probabilitiesin the game of Monopoly.Web-basedreportfrom author'shomepage at: http://www.teleport.com/-tcollins/monopoly.shtml. Galor,O., and J. Zeira. 1993. Incomedistributionand macroeconomics.Reviewof EconomicStudies 60 (January):35-52. Gillis, M., D. Perkins,M. Roemer,and D. Snodgrass. 1996. Economicsof development.4th ed. New York:W.W.Norton. Humphrey,D. 1970. Simulationreview.Simulationand gamnes1 (December):449-56. Kish-Goodling,D. 1998. Using the Merchantof Venicein teaching monetaryeconomics. Journal of Economic Education29 (Fall): 330-39. Knechel, R. 1992. Monopoly:A practice set. New York:HarperBrace J College Division. Stodder,J. 1998. Experimentalmoralities:Ethics in classroom experiments.Journal of Economic Education29 (Spring): 127-39. Swaminathan,M. 1991. Segmentation,collateralundervaluation,and the rate of interestin agrarian credit markets:Some evidence from two villages in South India. CambridgeJournal of Economics 15 (June): 161-78. Wilkie, J. ed. 1995. Statisticalabstractof LatinAmerica,Vol. 31, Pt. 1, Tables 302-06. Los Angeles, Calif.: UCLA Latin AmericanCenterPublications. Williams, R. 1993. Marketexchange and wealth distribution:A classroom simulation. Journal of Economic Education24 (Fall): 325-34.

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