Observe children at play. Frequently, you will observe that they negotiate and re-negotiate the rules by which they play. Why do they do that? They do because they notice that their own rules determine what is permissible play behavior and that the resulting play strategies determine who wins and who loses. But games are no fun when someone constantly wins, or constantly loses. For the game to be fun the outcome needs to be made uncertain. And for that to happen, the players need to be able to change their strategies of play which requires re-rigging the rules from time to time. This is true at least for children that play repeatedly with each other. (If they meet only once, we see contest – who wins – instead of play.)

Children's behavior makes for excellent examples to teach economic concepts.

Children and their behavior make for many excellent examples to teach economic concepts. The description just given for instance neatly encapsulates major aspects of a branch of economics called industrial organization. The rules of the game determine the permissible strategic conduct of the participating companies and therefore their performance in terms of profitability and stock value. If firms repeatedly interact with each other, for example as suppliers and buyers, it would not be useful for the suppliers to always "win" and drive their customers out of business. The rules need to be rigged to allow both to play indefinitely (one effect of anti-monopolization rules). In contrast, behavior in a one-off encounter among firms can be drastically different. In the absence of a joint future, the present is fully exploited to one's advantage.

Another example: children and adolescents are masters of product differentiation. New clothes, new hairstyles, new body movements and adornments, new skills and behaviors. Why do the kids do this? They do it to differentiate themselves from one another and increase their "market" value among peers. They do it to become relatively more attractive. I find it especially fascinating to observe differentiation among children when parents impose regulations to make the kids more alike. For instance, when children are asked to wear school uniforms, they still find ways to look and act different. Product differentiation is of course what firms selling functionally identical products are all about. Bananas used to be bananas – until the Chiquita sticker appeared. The point of product branding is to differentiate the brand in the buyer's mind. Of course, some differentiations are easy to imitate, hence the Dole banana sticker, in which case branding becomes a quality assurance signal, and buyers are asked to pay a higher price for assurance and reputation effects even if unmarked bananas are in fact just as good. Similarly, children will begin displaying "trade-mark" behavior and strive to maintain reputations (even if deemed undesirable from an adult's point of view).

An unrestricted supply of pollution permits means a room exactly as messy as the kids can stand it.

In environmental economics, some students find it difficult to grasp that changing the price of pollution affects the amount of pollution we observe. Some even doubt that there is a price for pollution. Or they find it repulsive that firms are charged a price for permission to pollute. My children help me to get the point across. "No, you may not go out and play with your friends – until your room is clean," means that I supply pollution permits. My supply of permits meets their demand for messy rooms. Hence, a market and a market "price" come into existence. An infinite supply (no restrictions) means a room exactly as messy as they themselves can stand it. A limited supply (my restrictions) means a room exactly as clean as I am willing to accept. All of a sudden, important aspects of environmental economics become clearer. Just as children want messy rooms (at the expense of my feeling of well-being), so firms want to pollute free of charge (at the expense of the natural environment).

Think of children as firms, and of parents as government that issues regulations. Now you understand "lobbying" behavior .

Another example: think of children as firms, and of parents as government that issues regulation. We observe rent-seeking ("lobbying") activities to have the regulations bent in the kids' favor, at the expense of parents and siblings. Sometimes children manipulate their parent "government" to engage in "international" lobbying, that is to intervene with other children, parents, or with teachers in school. The dynamic of rent-seeking in a one-parent household is different from that of a two-parent household. One is a more or less benevolent dictatorship, the other is a two-party liberal-conservative system. In the first, a child may try to "educate" the parent to get the regulations changed; in the second, a child will usually first try to play one party against the other before trying more cumbersome (expensive) strategies. At the parent level, the two-party system naturally carries a higher coordination cost. Some parents solve this by delegating all child-related decisions to one party, or to delineate which kinds of decisions are made by whom. If parents coordination costs are too high (e.g., because of fundamental disagreements in child-raising policy), kids will exploit the differences. If parents' regulations are too burdensome, kids will openly or silently rebel. The similarities between kids' and firms' behavior are striking.

We can see that there is a delicious amount of economics and strategy between and among children and parents. Child's play and playground economics would make for an entertaining and humorous book-length treatment.