Your Place in Space: Classroom Experiment on Spatial Location Theory

Abstract

The authors detail an urban economics experiment that is easily run in the classroom. The experiment has a flexible design that allows the instructor to explore how congestion, zoning, public transportation, and taxation levels determine the bid–rent function. Heterogeneous agents in the experiment compete for land use using a simple auction mechanism. Using the data that is collected, a bid–rent function is derived, and the experimental treatment is altered over the course of three sessions to uncover core concepts in urban economics. Moreover, this provides a tangible experience that can be used to help undergraduates relate to urban issues such as the steep rent gradient found around many larger colleges and universities.

Keywords:

• bid–rent function
• classroom experiment
• spatial location
• urban economics

JEL codes:

• A22
• R1
• C9

Margo Bergman is a professor of economics at Incarnate Word Academy. G. Dirk Mateer is Senior Lecturer in economics at Pennsylvania State University (e-mail: [email protected]). Michael Reksulak is an assistant professor of economics at Georgia Southern University. Jonathan C. Rork is an assistant professor of economics at Georgia State University. Rick K. Wilson is a professor of economics at Rice University. David Zirkle is an instructor in economics at Randolph College. The work for this article was completed under an NSF Infrastructure grant (SES 00–94800), although that agency bears no responsibility for the contents. The authors thank the 2004 NSF Workshop on Classroom Experiments in Economics held in Williamsburg, VA. Special thanks go to Lisa Anderson, Catherine Eckel, and Charlie Holt for their help and comments.

Notes

1. Overbidding often happens in the beginning, as students acquaint themselves with the experiment. As our results demonstrate, students approach the theoretical outcomes as their experience in the experiment increases. Such an occurrence opens the door for the instructor to have a discussion about the importance of rationality of agents for the predictions of not only this particular model, but also many other economic models that we teach.