Rationing a "Free" Good: A Classroom Experiment

Abstract: The author describes a classroom experiment that illustrates the welfare effects of allocating a good on a first-come, first-served basis. In the first round, each student must decide how long to wait in an imaginary line for candy, without knowing how much will be distributed or how long others are willing to wait. In making this decision, a student must balance a desire to win candy with a desire to spend as little time as possible in line. The supply and demand curves for the candy are then revealed and the consumer surplus and time spent waiting are measured. In subsequent rounds, students are allowed to change their wait times in light of this new information. Their wait times eventually conform to the textbook model of nonprice allocation with perfect information.