G202: Business and Economic Strategy in the Public Arena (Honors) December 20, 2004
Indiana University, Kelley School of Business
Eric Rasmusen


The course packet is produced by ClassPak Publishing, [email protected]. Items with stars (*) are not in the packet, and were added as the course proceeded. They include many items that I mention but do not discuss in class and which you need not read (e.g., my scholarly papers). The syllabus is at http://www.rasmusen.org/g202/schedule.g202.htm. Email: [email protected]

*November 15 Advice on the term paper

Topic 1: Introduction
"I, Pencil," Leonard Read. Copyright from the Foundation for Economic Education.

"The Power of Incentives: How Seat Belts Kill," Steven E. Landsburg, Chapter 1, pp.3-9 of The Armchair Economist: Economics of Everyday Life, New York: The Free Press, 1993.

*Eric Rasmusen, ``The Economics of Gratitude: An Objection to ``The Principle of Fairness'. '', relevant to consumer and producer surplus.

*Eric Rasmusen, "Strategic Implications of Uncertainty Over One's Own Private Value in Auctions," on uncertain consumer surplus and sniping.


Topic 2: Supply and Demand
"The Analysis of Competitive Markets," Robert Pindyck and Daniel Rubinfeld, pp. 289-294, 301-303, 318-322 of Microeconomics, 4th edition, Upper Saddle River, N.J.: Prentice-Hall, 1998.

"The E-Commerce Explosion," Roger Leroy Miller, Daniel K. Benjamin, and Douglas C. North, Chapter 15, pp. 95-99, of The Economics of Public Issues, 12th edition, New York: Addison Wesley Longman, Inc. 2001

*Homework 3 diagram answers: front and back.


Topic 3: Property Rights
"Private Property, Freedom, and the West," James Gwartney, Chapter 10, pp. 62-76 of The Market Economy: A Reader, Los Angeles: Roxbury Publishing Company, 1991.

"The 'Berry Bikes': A Lesson in Private Property," Daniel L. Alban and Frank Stephenson, The Freeman: Ideas on Liberty, v49, n10, pp.8-9, October 1999.

"Fishing on the River Tweed: Stewardship Through Private Beats," Seth Zuckerman, Perc Reports, v20, n3, pp.7-9, September 2002.

"Online Music Distribution in a Post-Napster World," Youngme Moon, Harvard Business School, 7/31/03.

*Napster.com ($) and classicalarchives.com (R)

*www.fishtweed.co.uk, and a map (click on parts of the map) and Fairnilee Beat, and its prices

*Eric Rasmusen, Games and Information and chapter downloads

*Richard McAdams and Eric Rasmusen, "Norms in Law and Economics"

*Mark Lemley, 2004, "Property, Intellectual Property, and Free Riding" and comments by Eric Rasmusen at "The Consumer Surplus Argument for Patent Monopolies".

* "Selling Your Spot in Line-- Canadian Knee Operations", http://www.rasmusen.org/x/archives/000224.html (Sept 21, 2004).


Topic 4: Entrepreneurs and Profits
The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Joseph Schumpeter, 1911, English translation 1934.

"Freedom and Failure," Dwight R. Lee, Chapter 4, pp. 14-19 of The Market Economy: A Reader, Los Angeles: Roxbury Publishing Company, 1991.

"Waterlogged," Perc Reports, v20, n3, pp.12, September 2002

* "Anti-Price-Gouging Laws Harm Consumers" hurricane article, Florida rules, and Cleanup workers. On business opportunities and laws that thwart them.

* WSJ article on stainless steel and diagrams. On demand shifts and short-run profits.

* Overhead slides for Topic 4.


Topic 5: Market Failure
"The Economic Role of Government," James D. Gwartney , Richard L. Stroup and Russell S. Sobel, Chapter 5, pp.117-136 of Microeconomics: Private and Public Choice , 9th edition, Orlando: The Dryden Press, 2000.

"Government and the Economy," Steven Rhoads, The Economist's View of the World, Cambridge University Press.

"Government Institutions Relevant to Businesses," Eric Rasmusen, Indiana University, November 17, 2001.

"Public Goods and Government Failure: Deciding the Appropriate Role for Government," Eric Rasmusen, Indiana University, July 2, 2002.

*Overheads on public goods for Topic 5.

* Caroline Hoxby, "Chalk It Up," Wall Street Journal, p. A18 (September 29, 2004). On charter schools.


Topic 6: Government Failure
"The Economics of Collective Decision Making," James D. Gwartney , Richard L. Stroup and Russell S. Sobel, Chapter 6, pp.143-162 of Microeconomics: Private and Public Choice , 9th edition, Orlando: The Dryden Press, 2000.

"The Power of Organized Interests," Charles Wheelan, Chapter 8, pp. 137-148 of Naked Economics: Undressing the Dismal Science, New York, NY: W.W. Norton and Company, 2003.

"Candid Reflections of a Businessman in Washington," Michael Blumenthal, Fortune, January 29, 1979, pp. 36-49.

"The Greasy Pole," Jonathan Lynn and Antony Jay, The Complete Yes Minister: the Diaries of a Cabinet Minister by the Right Hon. James Hacker, MP, Topsfield, Mass. Salem House, 1987.

* "Fannie Mae Enron?" Wall Street Journal, October 4, 2004. On manipulating the bottom line, something firms sometimes try but usually fail at eventually. Governments don't even have to try.

*"The Greasy Pole " website with audio.

* Overhead Slides on Government Failure

* "Important Ideas Relevant to Government Failure"


Topic 7: Policies, Regulations, Coalitions, Lobbying, and Political Support
"How Does Government Regulation Affect Your Life?" James D. Gwartney , Richard L. Stroup and Russell S. Sobel, Application 4, pp.511-522 of Microeconomics: Private and Public Choice , 9th edition, Orlando: The Dryden Press, 2000.

"Political Analysis for Business," David Baron, Chapter 6, pp. 165-173 of Business and its Environment, 3rd edition, Upper Saddle River, N.J.: Prentice-Hall, 2000

"The Safe Food Act: A Consumer Group’s Perspective," Harold F. Hogan Jr. Harvard Business School, 12/16/99.

"Generating Support," Alan Rosenthal, pp. 147-177 of The Third House: Lobbyists and Lobbying in the States, 2nd edition, Washington, D.C.: CQ Press, 2001.

"Manager's Journal: The Federal Register: Capitalist Tool," Wall Street Journal, 6/3/85.

* Overhead slides on Lobbying (powerpoint format) for Monday and Wednesday

* Opensecrets.org,the site to visit for information on lobbying and political contributions.

*The Center for Science in the Public Interest (CSPI). The Safe Food Act of 2001, the HR 1671 bill's fate, bottled up in committee, and The Safe Food Act of 2004


Midterm Examination: The midterm examination is in the classroom during the normal class period on October 20.

practice questions and outline of topics for review


Topic 8: Market Power and Monopolies
"Monopoly," N. Gregory Mankiw, Chapter 15, pp.313-341 of Principles of Microeconomics, 3rd edition, Mason, Ohio: Thomson South-Western, (2004)

"The Parable of the Parking Lots," Henry G. Manne, Public Interest, No. 23 (Spring 1971).Reprinted in James D. Gwartney, Richard L., Stroup, Russell S. Sobel, and David A. Macpherson, Coursebook: Microeconomics: Private and Public Choice, 10th edition, Mason, Ohio: Thomson Learning.

"Forever: DeBeers and U.S. Antitrust Law," Debora Spar and Jennifer Burns, Harvard Business School, 4/20/00.

* Market Power powerpoint slides

*DeBeers Policy on Conflict Diamonds

*"De Beers pleads guilty in price fixing case," July 2004.


Topic 9: Environmental Economics and Externalities
"Protecting the Environment," Randall G. Holcombe, Chapter 4, pp.43-59 of Public Policy and the Quality of Life, London: Greenwood Press, 1995.

"Modeling Market Failure," Scott J. Callan and Janet M. Thomas, Chapter 3, pp.79-101 of Environmental Economics & Management, Chicago: Irwin, 1996

"Garbage to Oil," Perc Reports, v21, n2, pp. 15, June 2003

"Beer for Bessie: Farmers and Brewers Make a Deal," Clay J. Landry, Perc Reports, v20, n4, pp. 13-15, December 2002.

``Recycling Is Garbage," John Tierney, New York Times Magazine, June 30, 1996 ,Section 6; Page 24.

"Anti-Recycling Myths: Commentary on `Recycling is Garbage’, (John Tierney, New York Times Magazine, June 30, 1996)," Richard A. Denison and John F. Ruston, July 18, 1996

"DuPont Freon Products Division," Forest Reinhardt, Harvard Business School, 3/28/95.

*Powerpoint slides on the environment and MS-Word slides on the Tierney article.

*"Econ 222 retires nine tons' worth of sulfur dioxide permits"-- Bates college story.


Topic 10: The Economics of Information
"The Regulation of Quality Standards," Randall G. Holcombe, Chapter 7, pp.93-106 of Public Policy and the Quality of Life, London: Greenwood Press, 1995.

"Hitting the Wall: Nike and International Labor Practices," Jennifer Burns, Harvard Business School, 9/15/00

*Best Western Hotels Fees

*Powerpoint slides on imperfect information.

*Trader Joe's FAQ

*A WSJ article on Marsh and McLennan.

*Department of Justice March 2004 press release on the indictment of the Worldcom CEO.

*The Fair Labor Association's 2004 report on Nike


Topic 11: Public Goods and Free Riders
"Market Failure: Public Goods and Externalities," Edgar K. Browning and Jacquelene M. Browning, Chapter 2, pp. 26-37 of Public Finance and the Price System, 4th edition, Upper Saddle River, New Jersey: Prentice Hall, 1994.

* Overheads on public goods and free riders for Topic 11

*November 15 Advice on the term paper

*Lobbying game scoresheet and overheads of lessons and caveats


Topic 12: International Trade Policies
"Application: International Trade," N. Gregory Mankiw, Chapter 9, pp.175-187 of Principles of Microeconomics, 3rd edition, Mason, Ohio: Thomson South-Western, (2004)

"Chiquita Brands International," Terence Mulligan, Harvard Business School, 2/24/02

"What do Undergraduates Need to Know about Trade?" Paul Krugman, American Economic Review, 83: 23-26 (May 1993).

"Notes on Quotas," Eric Rasmusen, Indiana University, July 27, 2002.

*Powerpointslides on international trade and on Chiquita.

*"EU Launches WTO Assault Over Steel Tariffs", November 9, 2004 Washington Post article.

*Chiquita follow-up material: Lindner's 1996 political contributions and the filing of the WTO complaint, Senator Grassley's 2004 letter (see the middle part of it) and a 2001 webpage, "EC & US AGREE TO END EIGHT-YEAR BANANA WAR; ECUADOR THREATENS WTO ACTION"


Topic 13: Controversial Issues and Business Ethics
"What is Ethics?" Markkula Center for Applied Ethics,

"What Do We Mean when We Talk about Ethics?" Mariam Schulman and the Markkula Center for Applied Ethics,

"Ethics and Conflicts of Interest," Michael McDonald and CAE

"Broken Trust: Role of Professionals in the Enron Debacle," Ashish Nanda, Harvard Business School, 2/28/03

*Overheads on the Enron case

* An article on a 2004 conflict of interest: "TIAA-CREF Faces Question On Governance Fund's Brass Failed to Inform Key Panel About Improper Deal With Ernst, Its Outside Auditor"

* An article on a 2004 ethical question: "Cities Use Eminent Domain To Clear Lots for Big-Box Stores"

*Study outline for the final examination

*Review session powerpoints


Final Examination: The final examination is in the classroom at the standard University scheduled time, Friday, December 17, 5:00-7:00 p.m. It will be cumulative.

Here is the answer sheet for the final.