Monday, November 10, 2008

A stash of cash

One of my students sent me a link to an article about a dispute concerning found money. A contractor discovered $182,000 of Depression-era cash while remodeling a house for a friend. Their initial excitement turned into dispute as they could not agree on how to split the find. Eventually they ended in court, and the publicity brought in heirs to the person who had stashed the cash. The end result was that neither ended up with much, and that they both could have been much better off if they had been able to settle privately. It is hardly an original story line--a number of movies have been built on this theme.

The story could be used to illustrate a number of economic concepts. It illustrates why there is no predictable solution in bilateral monopoly. It is an example of transactions cost. And it shows the importance of fairness in a situation much like the ultimatum game.

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