Energy and the Environment

Sheryl B. Ball, Virginia Tech
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Initial Publication Date: June 25, 2010


This experiment illustrates how people's decision to drive instead of using more environmentally friendly means of transportation can lead to negative externalities. Students develop policy recommendations to solve the resulting public health problems and these recommendations are tried in the experiment. Policy recommendations can be evaluated to see whether they solve the externality problem as well as to evaluate their efficiency and justice implications.

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Learning Goals

This activity is designed to help students learn about how individual decisions can result in consequences for others and to examine solutions to the resulting externality problem. By the end of this activity, students will be able to

  • define and identify externalities associated with the decisions individuals make
  • explain why individuals do not have personal incentives to reduce their own production of negative externalities
  • design and evaluate policies to reduce externalities in a simplified setting
  • determine the justice implications of a simple policy solution, for example, identify whether some groups of people benefit more than others

Context for Use

  • This activity is appropriate for introducing externalities in a unit on economics or in an economics course for middle school students through principles of economics, or with students who have no more than a principles-level knowledge of economics in a course on energy or environmental policy.
  • This activity can be conducted as an individual project within a class, but group work or an individual or group homework projects are recommended and easily added elements.
  • The activity is can be conducted in a class that takes 50 minutes or less. Alternatively, the exercise can be spread over parts of two class periods. In this case, students might come up with "policy recommendation" outside of class and turn them in before class. This makes it easier for the instructor to decide how to implement the recommendations in the experimental setting.
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Description and Teaching Materials

The first step in conducting the experiment is the instruction stage. In this stage distribute instructions and an optional test of understanding for students.
  • Energy and the Environment Pre-Test (Acrobat (PDF) 46kB Mar1 10) -This can be used as a pre-experiment quiz for credit or less formally as a "check of understanding" during class.

The experiment starts with stage 1. In this stage all students have the same cost and benefit information - that contained in the instructions you have already distributed. It is important to read the instructions aloud and give students the opportunity to ask questions before starting the experiment. Stage 1 is mostly to familiarize students with the game will involve 2-3 rounds - your guideline is to end Stage 1 when you think that students have gotten the hang of things. The sequence of events is:

  • Ask all of the students to write their names on slips of paper (I like old business cards for this), collect them and put them in a box or bag. You will need this to determine which students get "sick" each day. Note: It is only necessary to do this once.
  • Ask students to decide whether they wish to drive or take the bus on that particular day.
  • Collect decisions either by show of hands or asking students to write it down and collect decisions. Remind students to record their decisions on their record sheets.
  • Count up the number of students who decide to drive and ride the bus and display it for the class. You might want to use this Results Table (Acrobat (PDF) 25kB Feb28 10).
  • Calculate the number of people who are "sick". Then draw names to see which people are sick. Remind these people that their earnings are zero for the day. It is interesting to ask the "sick" students whether they drove or rode the bus and point out that sometimes even the folks who are riding the bus (i.e., NOT contributing to the negative externality) get sick. To help drive home the point I usually ask the class how they feel about the fact that people who are riding the bus and NOT making others sick are getting sick. Don't forget to put the "sick" students name back into the pile so there is a chance that they could get sick the next period as well.
  • Remind everyone to record all of the information on their record sheet, ask for questions, then repeat.

Stage 2 of the experiment is very similar to Stage 1 except that students get new private information.

  • Payoffs for Energy & the Environment (Acrobat (PDF) 32kB Feb28 10) - Worksheet that contain students' "private information" to be used in Stage 2 - this file contains instructions for duplicating and distributing the information to students.
  • After the first round of the game ask the students how their individual decision problem has changed and what impact this is having on the outcomes for the group.
Stage 3 of the experiment asks students to come up with policy solutions to the externality problem.
  • Stage 3 Instructs for Energy & the Environment (Acrobat (PDF) 27kB Feb28 10) - Verbal instructions to motivate stage 3 of the game. Students work in groups of 3-4 which you help form in a small class. In a large class where groups are making decisions about whether to drive or ride the bus they can work in the groups that have already formed.
  • Ask each group (or a reasonable number of groups) to explain their policy solution to the class. Write them on the blackboard. In a large class it is common for many groups to come up with similar solutions, so even in a large class it may be possible for every group to present their result. Possible Policy Outcomes and Categories (Acrobat (PDF) 49kB Feb28 10) - some examples of outcomes that previous groups have come up with and notes for categorizing these policy solutions by regulatory regime.
  • At this point it is a great idea to try to test some of the solutions the class comes up with. Usually it is sufficient to test 1 or 2, and you can be selective in picking policy solutions that will be easy for you to administer and that will be likely to have an interesting result.
You might want to review a flow chart of the steps involved in carrying out this experiment.

Here is some Sample Data (Acrobat (PDF) 44kB Mar1 10) to help you get a feel for what will happen in the experiment. In the highly unlikely case that your class experiment doesn't go well a backup plan is to show students these results.

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Teaching Notes and Tips

Features about the exercise the instructor should be aware of:

This entire exercise can be conducted in a 50 minute class or split so that it takes part of two classes.

Make sure to bring to class:

  • Slips of paper for students to write their names on and a bag or box to put them in. This is to determine who "gets sick" each period.
  • Copies of instructions, record keeping sheets and pre-experiment quiz (optional) for every student in the class
  • Form for displaying results to students
  • Private information for students in Stage 2 of the experiment
  • Instructions to read aloud for Stage 2
  • Instructions to read aloud for Stage 3

This exercise requires at least 9 students to work but can easily be modified for large classes - I have used it in a class of 130 with difficulty by dividing students into groups of 4 and asking each group to make a single decision. If you have them available, clickers could be used to poll students about their decision in each round making the exercise feasible in large classes. I accomplished this by show of hands.

Prior to conducting this activity, the instructor needs to:

  • Prepare instructions, pre-experiment quizzes (optional), log sheets, private information slips and other materials for use in or before class. Also decide whether to have students read instructions in advance of class or during class.
  • Plan whether to conduct the exercise in a single class or spread it across two classes. In the second case, the instructor may want students to prepare policy recommendations outside of class and turn them in electronically for review prior to the next class meeting.

During the session of conducting the group activity,

  • Make sure to record student decisions and the number of people who "get sick" on the blackboard, overhead slide or powerpoint slide each round so that students can follow the game.
  • Periodically ask for questions about the game.
  • As the experiment progresses reinforce these "takeaways"!
  1. Most decisions have both private and external benefits and costs. This creates the "Tragedy of the Commons"
  2. People often think more about private than external when making decisions
  3. This can mean that society tends to suffer from too many external costs
  4. It probably is going to take more than just "awareness of the problem" to make the problem go away.
  5. A purpose of government is to create policies that can keep society from ending up having a bad outcome
  6. Some policies are better than others

The use of this activity beyond introductory level:

  • This exercise can be successfully used in environmental economics or regulation courses in economics, as well as courses in related fields. It is probably not appropriate for higher-level elective courses in economics.
  • This exercise is also appropriate for middle and high school students.
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Students are assessed using:

  • Activity Worksheet – Ask students to write a short essay where they evaluate the efficiency and the justice involved in one or more of the policy solutions suggested by groups in the class. One idea is to assign groups to evaluate their own and one other group's policy recommendation. You might also ask them to evaluate the policies that you actually tested in class.
  • Questions for assessing learning outcomes. - This involves asking students questions where you assess whether they understand what happened in the experiment as well as related economic concepts. Some multiple choice examples are attached.
  • Group Learning Rubric: Write a rubric that rates qualities of the policy outcomes the students come up with. For example, one measure might be "creativity." In this case "ban driving" is a not very creative solution and "set a high parking permit cost so that only those with the highest benefit choose to drive and redistribute the revenues among sick students" might rate as very creative. Use this to assess the quality of the policy recommendations that you get. This exercise is not necessarily done for a grade, but more to give you as the instructor feedback about how your students are learning.
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References and Resources