Friday, September 16, 2005

Class Economics

What to do in these situations?

A CLASS is offered by two professors. Students are allowed to select between the two, but one is preferred to the other by all students. Assuming students only care about the professor (and not, say, class size) it's Pareto optimal for all the students to take the class with the good professor. Then what do you do with bad professors?

THERE'S ALSO a sort of public good problem. That is, no one wants the bad professor to realize his badness by having no one show up to his class. But no one is willing to show up to make him feel better, they'd rather free ride on those who are most altruistic.

A CLASS will be cancelled if its enrollment falls below three; there are three people in the class. A person's choice to drop the class then has strong negative externalities, the other two are not able to take the class. Then should we subsidize the third student's choice to take the class? Do we pay them cash to stay in the class? Is there a Coasian solution? Could the other two students negotiate a deal in which they pay the third student to take the class?


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