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Lesson 4: Property Rights

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Concepts:
  • Property Rights
  • Private property
  • Incentives
  • Collectivization
  • Profits
  • Tragedy of the Commons
Content Standards and Benchmarks (4, 10 and 16):

Standard 4: People respond predictably to positive and negative incentives.

Benchmarks:

  • Rewards are positive incentives that make people better off.
  • Penalties are negative incentives that make people worse off.
  • Both positive and negative incentives affect people’s choices and behavior.
  • People’s views of rewards and penalties differ because people have different values. Therefore, an incentive can influence different individuals in different ways.
  • Responses to incentives are predictable because people usually pursue their self-interest.
  • Changes in incentives cause people to change their behavior in predictable ways.
  • Incentives can be monetary or non-monetary.
  • Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them.

Standard 10: Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and well-enforced property rights, is essential to a market economy.

Benchmarks:

  • Property rights, contract enforcement, standards for weights and measures, and liability rules affect incentives for people to produce and exchange goods and services.

Standard 16: There is an economic role for government to play in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.
(Note: Standard 16 is written in reference to market economies; however, it can be approached through comparison / contrast to centrally directed economies like that of the Soviet Union.)

Benchmarks:

  • An important role for government in the economy is to define, establish, and enforce property rights. A property right to a good or service includes the right to exclude others from using the good or service and the right to transfer the ownership or use of the resource to others.
  • Property rights provide incentives for the owners of resources to weigh the values of present uses against the value of conserving the resources for future use.
Lesson Theme:
  • The agricultural system suffered from all the problems of industry, and its performance was further hampered by the government’s imposition of heavy in-kind taxation on the rural population and by its inability to exercise effective property rights in land.
Key Points:
  1. The economic principles we have employed throughout these lessons continue to be useful in examining the failure of collectivized agriculture to provide an adequate food supply, so that by the 1970s, the Soviet Union was importing grain from the west.
  2. The story of agricultural collectivism under Stalin’s leadership, is a story of resistance, bloodshed, and allocation by force.
    • As discussed in lesson 1, the choice to promote rapid industrial development was made at the expense of the peasants who suffered under controlled prices and restrictions on trade.
    • Under Stalin, peasants were forced from their land and coerced into living and working on giant collective farms, or kolkhozy.
      • Typically, collectives would have hundreds to thousands of workers – a scale much larger than is typically considered an efficient agricultural production unit.
      • Until Stalin’s death in 1953, the peasants did not have a legal right to leave the Kolkhozy and migrate to the city.
    • Peasants were forced to plant crops specified by the government and to deliver them to the government at confiscatory prices.
      • Food was then resold at much higher prices in the cities, thus generating revenue for the government at the farmers’ expense.
    • Implicit recognition of the inability of the collective system to provide adequate production is seen in the persistence – and eventual government tolerance of – private garden plots.
    • While villagers had to deliver up their official crops to the government at controlled prices, they were able to support themselves by selling the produce of small private plots in urban markets at market prices.
      • This provided an income to the farmers, and was key to supplementing the government harvest to meet the demand for food in the cities.
      • It also encouraged agricultural workers to divert their time to their own plots of land.
      • By the 1970s and 1980s, private plots on 4% of all arable land produced 25% of Soviet agricultural output.
  3. In the post-Stalin era, Khrushchev and later Brezhnev, raised government acquisition prices for food and stepped up government investment in agriculture, but the rural sector remained the Soviet Union’s most backward sector.
    • Khrushchev tried to expand grain production by moving farmers onto the arid steppes of Kazakhstan, and setting up vast state farms organized like industrial firms, but Moscow was unable to organize the harvesting and transportation of crops from remote locations.
      • As a result, food rotted in the fields, while people in cities suffered shortages.
      • Rural youth and skilled men fled the farm sector.
      • By the 1980s, the median worker on a Russian collective farm was a fifty-five year old female with fewer than 6 years of education.
    • From an economic point of view, the fundamental problem in Soviet agriculture was poorly defined and poorly enforced property rights.
  4. One of the keys to the success of market-based economies is the right to own, control, and receive the benefits from private property.
    • The existence of clearly defined and well-secured property rights creates incentives for owners to direct their property to its highest valued use.
      • This, of necessity, includes consideration of the value of conserving the resource for future use.
      • It also encourages the owner to ensure that the value of his property doesn’t deteriorate – for example, through pollution.
    • In market based economies, private ownership confers two types of rights:
      • control rights – the right to control the use of property or transfer the control to someone else, and
      • benefit rights – the right to any value that may be created from the property.
        • For instance, the owner of a home near a large sports stadium can control the use of his property. He decides whether or not other people may park their cars on his lawn, and if he chooses to allow parking during sporting events, he receives the benefits – in the form of money – from using his property in this way.
  5. In the former Soviet Union, in theory, the people owned everything because the state owned everything.
    • In reality, control rights and benefits rights were separated.
      • Ministry officials and plant and farm managers exercised control rights.
      • Benefit rights belonged to “the people,” to everyone, and were to flow to workers through improved standards of living.
    • Both in the factory and on the farm, this situation created a moral hazard – incentives for abuses of power.
      • The government officials and plant and farm managers often used their control to try to create personal benefits.
        • Taking bribes and/or using “the people’s” resources for their own benefit was endemic, expected, and at least tolerated if not actually condoned by the citizenry.
    • On the other hand there were no incentives to end this corruption.
      • The benefit rights were so diffuse – spread out among so many people, that no one could claim a direct payment from production or farming, and no one was directly responsible for losses.
      • On the Soviet collective, workers had no incentive to work harder; many to most shirked work whenever possible.
    • The result was a heavy emphasis on output with little or no concern for:
      • production costs, or
      • the best uses of land.
  6. Another consequence of the “shared by all” property rights was that the Soviet Union experienced problems traditionally known by economists as the “tragedy of the commons.”
    • People treated many resources and goods like common property, which meant that they felt no responsibility to take care of them.
      • Economists have long recognized that when “the people” or “everyone” owns something, the incentives are the same as when no one owns it.
      • The peasant drove a tractor that everyone owned, out to till a field that everyone owned, to spread seed and fertilizer that everyone owned, to raise a crop that everyone owned!
    • The problems arising from an individual’s sense of non-ownership include:
      • overuse and depletion of farm lands;
      • deterioration of capital equipment;
      • pollution and disregard for the total environment.
    • The consequence of collective “ownership” is made vividly clear. We recall from item 2, above; output comparison of the kolkhozy lands to that of private garden plots show that private plots reduced shirking and “free-riding” on the efforts of others.
      • To illustrate the “free-rider” problem, consider 10 workers who share ownership of the land and who collectively produce 100 bushels of corn, averaging 10 bushels each for consumption.
      • Suppose that one worker begins to shirk and cuts his labor effort in half, reducing output by 5. The shirker’s consumption, like the other workers’, is now 9.5 (95¸ 10) bushels thanks to the shared arrangement.
      • Although his effort has fallen 50 percent, his consumption falls only 5 percent. The shirker is “free-riding” on the labors of others.
      • The incentive for each worker, in fact, is to free-ride, and this lowers the total output.
    • Conversely, suppose that one worker considers working longer daily hours (12 instead of 10) to raise total output from 100 to 102. The gain in consumption to each individual is 0.2 bushels (2¸ 10).
      • Although the worker’s effort increased by 20 percent, his consumption increased by only 2 percent.
      • There is no incentive for each worker to increase his effort.
    • More generally, with private property for each, any change in output from more effort goes to the person extending the extra effort. With common property, the gain is not in the change in output, but the change in output divided by the number in the group.
      • The larger the group, the less the gain from working harder and the less the loss from working less – from the individual’s perspective.
      • In other words, the larger the group, the greater the incentive to free-ride.
    • In contrast to their approach to the common property, peasants improved their private plots and took care to preserve or build up their fertility.
    • The collective farm household eked out a living, supporting itself by pilfering grain and provisions from the collective farm to feed a milk cow and a few chickens and by selling the produce from its private plot in a nearby town.
Conclusion:

The consequences of the absence of the incentives inherent in a system of well defined and secured rights to private property are clearly illustrated by the abject failure of Soviet agriculture. The inability to exchange land and allocate it to its most valuable uses resulted in endemic land misuse, overuse, and depletion, and to the human suffering that accompanied increasingly poor harvests.

Activity:  ‘What Do I Care’ Who Owns It? – Farming for Myself or Farming for Everyone?

Demonstration Video

Lesson Overview: The nature of individuals’ rights to property affects incentives, opportunity costs, and choices. Under different rules of property ownership, student farming teams wrestle with the problem of deciding whether to sow their wheat seed or let land lie fallow.

Economic Concept:
  • property rights
Economics Content Standards:

Standard 4: People respond predictably to positive and negative incentives.

Benchmarks:

  • Responses to incentives are predictable because people usually pursue their self-interest.
  • Changes in incentives cause people to change their behavior in predictable ways.
  • Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them.

Standard 16: There is an economic role for government to play in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.

Benchmarks:

  • An important role for government in the economy is to define, establish, and enforce property rights. A property right to a good or service includes the right to exclude others from using the good or service and the right to transfer the ownership or use of the resource to others.
  • Property rights provide incentives for the owners of resources to weigh the values of present uses against the value of conserving the resources for future use.
Materials:
  • a bag of Tootsie Roll Pops or other candy
  • Handouts:
    • Scenario – 1 per student
    • Role Handouts – 1 per student
      • Copy the 3 role cards on different colored paper. Make enough of each color for 1/3 of the class members
    • “Who’s Right?” – 1 for each group of 3
    • overhead transparencies:
      • scenario
      • yield chart
Time required:
  • 1 class period
Assessment:

Predict what happens to the quality and productivity of Bureau of Land Management (BLM) grazing land in the western United States when ranchers are given limited time leases and know that they will not have the opportunity to buy the land. Use the concept of property rights to justify your prediction.

Procedures:
  1. Distribute the following scenario and read to class. Post it on the overhead for further reference.
    • Farming ScenarioNick (or Nikki) and Samantha (or Sam) are siblings who have proudly followed the farming tradition of their family. Samantha has recently purchased a 200 acre piece of prime crop land. Because her farm is already big, she feels she only has time to farm about half of the new land and offers her brother the use of the rest of it, rent-free for 6 years, to help pay for his son’s college tuition. She generously provides him with the following information that she gathered before purchasing the land:Best available predictions, based on production in surrounding areas with similar conditions, indicate that you can expect:
      • each acre to produce 20 bushels of wheat in the first season;
      • each acre to decline in productivity by 20% each successive season;
      • land that lies fallow every other season will not decline in productivity.
    • Everything is fine until one Sunday when the whole family has gathered for dinner. Nick laughingly mentions that his older son, “the environmentalist tree-hugger” actually thinks that he should let part of the land lie fallow each year. Things get real quiet when Samantha responds, “I don’t see what’s so funny about that,” and Nick comes back with, “Well, I’m not stupid, am I?” It’s not long before there’s a full-blown argument, complete with enough yelling to drive all the children outside.
    • Finally, Grandma has had enough. She announces, “Your father will decide who’s right, just as he did when you were kids. Come to dinner at our house tomorrow night and be ready to present your case.” Nick and Sam agree and go off to prepare their arguments.
  2. Divide students into groups of three and give the following directions:
    • Choose parts: Sam (or Samantha), Nikki (or Nick) and Dad (or Mom).
    • Working individually, read the corresponding role card and prepare your case.
    • Caution – Dad (Mom) isn’t the only one who has to know both sides of the issue.
    • Any group of three that can arrive at a decision and support their decision with economic reasoning wins a prize (candy).
  3. Answer only questions that clarify directions. Distribute the handouts. Allow students work time.
  4. When all groups have finished, distribute the Who’s Right? handout (or post a copy on the overhead). Students are to answer the questions as a team.
  5. Poll the groups. Large group discussion and debriefing. Distribute candy prizes. Debriefing questions:
    • What is the maximum yield for 6 years if you let land lie fallow every other year?  (1000 + 1000 + 1000 + 1000 + 1000 =1000= 6000) (Some students may choose 2000+0+2000+0+2000+0, which is fine as far as the exercise goes, but is probably unrealistic. A farmer would be unlikely to risk everything in one year knowing that he shouldn’t plant at all the next year. If he only plants half of his land and then loses his crop to a hail storm, he can still plant the other half the following year.)
    • What is the maximum yield for 6 years if you do not let the land lie fallow every other year?  (2000 + 1600 + 1280 + 1024 + 819.2 + 655.36 = 7378.56)
    • What is it about Samantha’s situation that makes producing 6000 bushels better than producing 7378.56 bushels?  (Her property right; the fact that she owns the land and can realize a return from selling it, if she keeps it productive.)
    • What is it about Nick’s situation that makes it rational to never let the land lie fallow?  (Nick is trying to maximize the value of the land in the time he has to use it. Since he doesn’t own the land, and foresees no possibility that he will, he has no incentive to care about the quality of the land at the end of the 6 year time period. If he lets any land lie fallow over the 6 years, he reduces the amount he can earn.)
    • How does the nature of property rights influence opportunity cost, and therefore decisions about land use in this case?
      • What is Nick’s opportunity cost of planting all 100 acres every year? (nothing)
      • What is Nick’s opportunity cost of letting half the land lie fallow  (7378.56- 6000 = 1378.56 bushels)
    • What is Sam’s opportunity cost of planting all 100 acres every year?  (8000 – 7378.56 = 621.44 bushels)
    • What is Samantha’s opportunity cost of letting half the land lie fallow?  (In the short run, Sam produces 1378.56 fewer bushels of wheat, but in the long run, Sam sells the land and the opportunity cost is more than covered by the sale.)
    • If we extend the use period to 10 years, does the situation change; is it still in Nick’s best interest to deplete the land?  (No, the situation doesn’t change; Nick is still better off to deplete the land.)
    • What dilemma does this set of incentives create for Nick? (It creates a potential conflict. It is not in Nick’s economic best interests to preserve the productivity of the land. One way to look at it is that it costs him more to be a conservationist than it does Samantha. On the other hand, there is a cost in having Sam angry with him . . . )
    • Who is right, Nick or Samantha?  “Dad” should decide that both his children are right. Because Nick doesn’t own the land, his economic best interests are served by using the land to its full productive potential each year. He reaps no economic benefit from letting any of the land lie fallow. Samantha, on the other hand, has a property right, which means that it is in her economic best interest to maintain the value of the land so that she can capture that value when she eventually sells the land. Students may bring up the fact that Nick and Samantha might never had this disagreement because they have other than financial interests – like getting along with each other. It’s important to acknowledge that non-monetary factors such as emotional ties, because they change the how people define their best interests, might produce different behavior than would occur if the people in the simulation were strangers.
  6. Transfer: The next step is to teach students to transfer what they learned in the simulation to the collectivization of agriculture in the Soviet Union.
    Before students begin work on the questions, ask the class to fill in the following charts comparing Soviet collective agriculture to the Samantha and Nick scenario. (See overhead transparency master at end of lesson.)
Samantha’s situation Soviet collectives
What’s the same?
What’s different?
Nick’s situation Soviet collectives
What’s the same?
What’s different?

Pose the following question:

  • Over time, the practice evolved in the Soviet Union of allowing (or ignoring the fact that they did) peasants to keep small private garden plots. Again, using your understanding of incentives and property rights, predict the use, level of care, and level of output in private lots compared to collective fields.
    (Encourage students to make a chart, but this time, let them decide what they are comparing.)
  • There is a great deal of evidence that private ownership made a difference. Private plots were extremely well cared for, produced abundantly, and occupied as much of the peasants’ time as they could take away from the work of the collective. By the 1970s and 1980s, private plots on 4% of arable land produced approximately 25% of total Soviet agricultural output.

Role Card – Samantha (or Sam)

Your task is to create a plan which maximizes the value of the land you own. Here are the things you know:

  • You have 100 acres to work with. (You won’t go back on your promise to let your brother work the rest.)
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • If you maintain the full productivity of the land, you can sell it at the end of 6 years for the equivalent value of 2000 bushels of wheat.

Use the chart below to examine different alternatives and decide which one allows you to make the most from your land.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20
2 100 16 +
3 100 12.8 +
4 100 10.24 +
5 100 8.192 +
6 100 6.5536 +
Total bushels of wheat produced in 6 years =
Bonus for maintaining land productivity = + 0 bushels
Total value to you at end of 6 years =
Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20
2 50 20 +
3 50 20 +
4 50 20 +
5 50 20 +
6 50 20 +
Total bushels of wheat produced in 6 years = =
Bonus for maintaining productivity of land = + 2000 bushels
Total value to you at end of 6 years = =

Role Card – Nick (or Nikki)

Your task is to create a plan which maximizes the value of the land you are being allowed to use. (After all, your kids will be ready for college soon.) Here are the things you know:

  • You have 100 acres to work with.
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • At the end of 6 years, you won’t get to use the land anymore.

Use the chart below to examine different alternatives and decide which one allows you to make the most from the land over the time you may use it.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20
2 100 16 +
3 100 12.8 +
4 100 10.24 +
5 100 8.192 +
6 100 6.5536 +
Total bushels of wheat produced in 6 years =
Bonus for maintaining land productivity = + 0 bushels
Total value to you at end of 6 years =
Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20
2 50 20 +
3 50 20 +
4 50 20 +
5 50 20 +
6 50 20 +
Total bushels of wheat produced in 6 years = =
Bonus for maintaining productivity of land = + 0 bushels
Total value to you at end of 6 years = =

Role Card – Dad (or Mom)

Aren’t your kids a pain?!? They fought the whole time they were growing up and they’re still at it. You’d better get ready. Each one is going to come to you and argue his case, and if you don’t understand all sides of the issue, at least one of them is going to be mad and say that you played favorites.

Here’s the information you have:

  • Right now, each of your children has 100 acres to work with.
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • Samantha owns the land and, if it retains its productivity, she can sell it in 6 years for 2000 bushels of wheat.
  • Nick doesn’t own the land, and mad as Samantha is right now, he certainly isn’t going to be able to farm it beyond the 6 years she’s already promised.
  • The only thing they seem to be able to agree on is that each wants to use the land in the way that will return the most money.

You have to figure out a logical way to resolve this dispute. They’ve listened to you in the past because your reasoning was so clear. You better hope it is this time, or the family feud is likely to continue and upset your Sunday dinners for years to come!

Use the chart below to examine different alternatives and decide what’s best for your kids and most likely to end the family disruptions.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20
2 100 16 +
3 100 12.8 +
4 100 10.24 +
5 100 8.192 +
6 100 6.5536 +
Total bushels of wheat produced in 6 years =

If Nick takes this option, does he get the 2000 bushel bonus at the end of 6 years? _________

What is the total value of the land to Nick at the end of 6 years? ______________ bushels

If Sam takes this option, does she get the 2000 bushel bonus at the end of 6 years? _________

What is the total value of the land to Sam at the end of 6 years? ______________ bushels

Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20
2 50 20 +
3 50 20 +
4 50 20 +
5 50 20 +
6 50 20 +
Total bushels of wheat produced in 6 years =

If Nick takes this option, does he get the 2000 bushel bonus at the end of 6 years? _________

What is the total value of the land to Nick at the end of 6 years? _____________bushels

If Sam takes this option, does she get the 2000 bushel bonus at the end of 6 years? _________

What is the total value of the land to Sam at the end of 6 years? _____________bushels


Who’s Right?

Group members:

Who’s right? (circle)

Dad’s initial decision Nick Sam

Group’s final decision Nick Sam

Explain your final decision, using economic reasoning. (Use back of sheet)

What economic concept(s) was key to understanding Nick’s and Sam’s different points of view? (Be sure you can explain this orally).

If Dad’s initial decision is different from his final decision, what was wrong with his initial decision, and how and why were you able to convince him to change it?


Overhead transparency for teaching Transfer skills

Transfer Skills

Samantha’s situation Soviet collectives
What’s the same?
What’s different?
Nick’s situation Soviet collectives
What’s the same?
What’s different?
what goes here??? what are you comparing???
What’s the same?
What’s different?

Role Card – Samantha (or Sam) (teacher guide)

Your task is to create a plan which maximizes the value of the land you own. Here are the things you know:

  • You have 100 acres to work with. (You won’t go back on your promise to let your brother work the rest.)
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • If you maintain the full productivity of the land, you can sell it at the end of 6 years for the equivalent value of 2000 bushels of wheat.

Use the chart below to examine different alternatives and decide which one allows you to make the most from your land.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20 2000
2 100 16 +1600
3 100 12.8 +1280
4 100 10.24 +1024
5 100 8.192 +819.2
6 100 6.5536 +655.36
Total bushels of wheat produced in 6 years = 6378.56
Bonus for maintaining land productivity = + 0 bushels
Total value to you at end of 6 years =6378 bushels
Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20 1000
2 50 20 +1000
3 50 20 +1000
4 50 20 +1000
5 50 20 +1000
6 50 20 +1000
Total bushels of wheat produced in 6 years = =6000
Bonus for maintaining productivity of land = +2000 bushels
Total value to you at end of 6 years = =8000 bushels

Role Card – Nick (or Nikki) (teacher guide)

Your task is to create a plan which maximizes the value of the land you are being allowed to use. (After all, your kids will be ready for college soon.) Here are the things you know:

  • You have 100 acres to work with.
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • At the end of 6 years, you won’t get to use the land anymore.

Use the chart below to examine different alternatives and decide which one allows you to make the most from the land over the time you may use it.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20 2000
2 100 16 +1600
3 100 12.8 +1280
4 100 10.24 +1024
5 100 8.192 +819.2
6 100 6.5536 +655.36
Total bushels of wheat produced in 6 years =6378.56
Bonus for maintaining land productivity = + 0 bushels
Total value to you at end of 6 years =6378 bushels
Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20 1000
2 50 20 +1000
3 50 20 +1000
4 50 20 +1000
5 50 20 +1000
6 50 20 +1000
Total bushels of wheat produced in 6 years = =6000
Bonus for maintaining productivity of land = + 0 bushels
Total value to you at end of 6 years = =6000 bushels

Role Card – Dad (or Mom) (teacher guide)

Aren’t your kids a pain?!? They fought the whole time they were growing up and they’re still at it. You’d better get ready. Each one is going to come to you and argue his case, and if you don’t understand all sides of the issue, at least one of them is going to be mad and say that you played favorites.

Here’s the information you have:

  • Right now, each of your children has 100 acres to work with.
  • Each acre, currently, will produce 20 bushels of wheat.
  • Yield will decline 20% every year with consecutive planting.
  • Letting land lie fallow one year preserves the productivity level.
  • Samantha owns the land and, if it retains its productivity, she can sell it in 6 years for 2000 bushels of wheat.
  • Nick doesn’t own the land, and mad as Samantha is right now, he certainly isn’t going to be able to farm it beyond the 6 years she’s already promised.
  • The only thing they seem to be able to agree on is that each wants to use the land in the way that will return the most money.

You have to figure out a logical way to resolve this dispute. They’ve listened to you in the past because your reasoning was so clear. You better hope it is this time, or the family feud is likely to continue and upset your Sunday dinners for years to come!

Use the chart below to examine different alternatives and decide what’s best for your kids and most likely to end the family disruptions.

Alternative 1 – Never let the land lie fallow
year acres planted bushels grown per acre bushels harvested
1 100 20 2000
2 100 16 +1600
3 100 12.8 +1280
4 100 10.24 +1024
5 100 8.192 +819.2
6 100 6.5536 +655.36
Total bushels of wheat produced in 6 years =6378.56

If Nick takes this option, does he get the 2000 bushel bonus at the end of 6 years? ___no______

What is the total value of the land to Nick at the end of 6 years? ___6378.56___ bushels

If Sam takes this option, does she get the 2000 bushel bonus at the end of 6 years? ___no____

What is the total value of the land to Sam at the end of 6 years? ___6378.56___ bushels

Alternative 2 – Let 50% of land lie fallow each year
year acres planted bushels grown per acre bushels harvested
1 50 20 1000
2 50 20 +1000
3 50 20 +1000
4 50 20 +1000
5 50 20 +1000
6 50 20 +1000
Total bushels of wheat produced in 6 years =6000 bushels

If Nick takes this option, does he get the 2000 bushel bonus at the end of 6 years? __no_____

What is the total value of the land to Nick at the end of 6 years? ___6000___ bushels

If Sam takes this option, does she get the 2000 bushel bonus at the end of 6 years? __yes____

What is the total value of the land to Sam at the end of 6 years? ___8000___ bushels