Game 3: Hedonic sorting
The story
Seventy-five households choose where to live among six neighbourhoods, A to F. The neighbourhoods differ in environmental quality (EQ) and school quality (SQ), and the price of a house depends on how many households move in. Your team plays one household type. Types differ in how much they value environmental quality. Round by round you work out where the households end up and what each neighbourhood costs.
Join
- Teams: envecon-games.netlify.app/games/hedonics-online/student.html
- Six teams, one phone per team, join with a team name. Household types are assigned in the order teams join.
How we play
- A household living in a neighbourhood with environmental quality EQ, school quality SQ and price P gets utility U = α · EQ + β · SQ − P. Your page shows your type’s α and β and each round’s EQ and SQ by neighbourhood.
- Supply rule. Neighbourhood A is free, P = 0. In B to F the price equals the number of houses occupied there.
- Each round your team submits three things: the split of the 75 households across A to F in equilibrium, the neighbourhood your type ends up in, and its utility there. The app checks each part separately. You have three attempts per round; after the third wrong submission your team sees the answer.
- Rounds 1 to 3: all types have the same preferences, and the neighbourhoods differ in EQ, then in EQ and SQ. Rounds 4 and 5: the types differ in α and only some neighbourhoods are clean.
- The round’s market is shown to everyone once every team is done.
Tips
- In equilibrium no household wants to move. Check neighbourhood by neighbourhood whether anyone could do better at the going prices.
- Prices follow from your split through the supply rule. Work them out before you compute utilities.
- Nothing is graded and there is no ranking.
Think about
When preferences differ, who ends up in the clean neighbourhoods, and what does the price difference between two neighbourhoods measure? Whose willingness to pay is it? We come back to this in the lecture, and again in Week 11.