The Paper River: A Demonstration of Externalities and Coase's Theorem

Publication: Journal of Economic Education

Volume: Volume 30, No. 2

Issue: Spring 1999

Pages: 141-147

Author(s): Gail M. Hoyt (University of Kentucky), Patrica L. Ryan (University of Kentucky), and Robert G. Houston, Jr. (University of Kentucky)

Address (Principal Author):Gail M. Hoyt, Assistant Professor of Economics, Carol Martin Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506-0034, 606-257-2517, fax: 606-323-1920

Internet Address (Principal Author):ghoyt@pop.uky.edu

Title: The Paper River: A Demonstration of Externalities and Coase's Theorem

Abstract: The Paper River is a classroom simulation in which one firm pollutes the water used by another firm, The water is represented by sheets of paper on which a first set of students (upstream firm) write on but then pass to a second set of students (downstream firm) who have to "clean up" the paper before making airplanes. The students learn how property rights provide a market solution to these pollution costs.