Globalization

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Unit 4: The WTO

Part 2: Free Rider Exercise: Trade Interdependency

The goal of this exercise is to illustrate the problem of free-riding and show the necessity of an institutional framework in order to prevent such. You will participate in a number of decision rounds where you must decide whether to be a “free trader” or a “protectionist.” You will earn a grade for the exercise based on the average rate of economic (GDP) growth you achieve across the decision rounds. Higher growth rates will be associated with higher grades.

The Payoff Matrix

		*Majority Decision*
		Protectionism	Free Trade
Your Decision	Protectionism	6% GDP growth	10 % GDP growth
Your Decision	Free Trade	4 % GDP growth	8 % GDP growth

DIRECTIONS. This game includes two sections, each composed of a number of rounds. In each round, you will decide whether you want to choose protectionism or free trade. After each person has voted, you will see the voting results. Your score (i.e., your nation’s GDP) will be determined by how you voted in comparison with the majority of the class. See examples below.

Example #1: You choose protectionism and the majority (>50%) of the class chooses protectionism. Your nation’s GDP grows by 6%.

Example #2: You choose protectionism and the majority (>50%) of the class chooses free trade. Your nation’s GDP grows by 10%.

Example #3: You choose free trade and the majority (>50%) of the class chooses protectionism. Your nation’s GDP grows by 4%.

Example #4: You choose free trade and the majority (>50%) of the class chooses free trade. Your nation’s GDP grows by 8%.

In the first section, you will work and vote independently. In the second, you will be able to confer with others before making your vote. In both cases, you should check the results of each round before deciding how to vote in the next round.

For each section you will earn a grade (#/10 points) based on the average GDP growth rate you maintain over the rounds. For example, if section #1 one lasts three rounds and you earned growth rates of 4, 6, and 10, then your grade would be 20/3 = 6.66 points out of a possible 10. The points you earn during the two sections as well as your participation in the discussions will be used to determine your overall grade for this exercise/discussion.

Each round of this game will last one day:

Day 1 — Round 1
Day 2 — Round 2
Day 3 — Round 3
Day 4 — Round 4
Day 5 — Round 5
Day 6 — Round 6
Day 7 — Round 7

At the end of the game, we will discuss the results, in particular how “free-riding” affects free trade and protectionism.

Section #1: In this section you will work and vote independently. You will not discuss your choices with other members of the class.

Username
		(Your username is your Blackboard account username)
Voting Round:		Round 1 Round 2 Round 3

Section #2: You will be given free reign to work together and discuss your choices before starting the first round. You will make further choices based on the majority results. You will also allowed to define the rules that will affect your grades.

Directions: Use the discussion forum to communicate with other classmates prior to and during Section 2 of this excise. As with the first section, your goal is to make choices which result the highest GDP growth rate for YOURSELF. All communications/discussions/agreements/rules should be pursued with the intent of improving your PERSONAL average GDP growth rate.

Username
		(Your username is your Blackboard account username)
Voting Round:		Round 4 Round 5 Round 6 Round 7

VIDEO: Interdependency—Beautiful Mind’s Nash equilibrium and prisoner’s dilemma.