Chaos and sector-specific externalities

Benhabib and Farmer [1996. Indeterminacy and sector specific externalities. Journal of Monetary Economics 37, 397–419] explore the possibility of local indeterminacy in a two-sector model with sector-specific externalities. They find that very small sector-specific externalities are sufficient for local indeterminacy. In this case, it is possible to construct sunspot equilibria where extrinsic uncertainty matters. In this paper, I provide a global analysis of their model revealing the existence of Euler equation branching. This branching allows for regime switching equilibria with cycles and chaotic behavior. These equilibria occur whether the “local dynamics” are determinate or indeterminate.     

Coasian equilibrium

We consider a general equilibrium economy with public goods and externalities. Following Boyd and Conley (1997), we treat externality markets directly instead of indirectly through Arrovian commodities. Because such direct externality markets are not subject to the nonconvexities that Starrett [Starrett, D., 1972. Fundamental nonconvexities in the theory of externalities. Journal of Economic Theory 4, 180–199] shows are fundamental to Arrow’s externality markets, this new approach admits the use of largely standard methods to prove welfare and existence theorems in an economy with externalities. We extend the Boyd and Conley model to allow firms to benefit from public goods and be damaged by externalities, and to allow consumers to produce externalities. We state a first welfare theorem and prove the existence of a competitive equilibrium. Taken together, this can be viewed as a type of general equilibrium Coase theorem. Considered as a special case, these theorems also represent a significant generalization of existing results for pure public goods economies.     

The welfare economics of city bigness

Money wages will vary among cities in an economy with perfect labor mobility, due to differences in costs of producing nontraded goods. Commuting costs contribute to making money wages higher in large cities. Increasing negative technological externalities, such as pollution and congestion, also make money wages higher in larger cities. Such externalities tend to make big cities too big, because marginal is greater than average externality. Internalizing the externalities would be likely to make a city larger if the externalities emanate from production of nontraded goods, but might make the city smaller if the externalities emanate from export production.     

Trade,redistribution and indeterminacy

In the present paper a tractable two-sector growth model with technological externalities and many countries is considered. It is shown that the occurrence of indeterminacy, a typical side-product of externalities, may appear due to the enlargement of the markets for goods and factors. Various scenarios of progressive levels of integration are considered. In particular, it is found that the integration into a common market on which countries trade the produced good and the inputs may lead to indeterminacy even when the equilibrium under full autarchy is determinate. A similar result holds when integration only affects consumption and capital goods. However, such result does not occur if the inverse of relative risk aversion is a linear or concave function. We conclude that in many usual situations, as the one with CES preferences, indeterminacy and the associated fragility of expectations and financial instability, is not likely to be increased by market integration.     

Price and quantity competition among heterogeneous suppliers with two-part pricing: applications to clubs, local public goods, networks, and growth controls

Models of club goods, local public goods, and growth controls appear to have theoretical structures distinct from usual oligopoly models. This article shows, however, that they are special cases of a generalized oligopoly model that incorporates the possibility of two-part pricing and externalities between consumers (either congestion or network externalities). Our generalized two-part pricing model not only serves as a synthesis of a wide range of models but also allows us to obtain several new results on equilibrium prices. Another advantage of our model is that it can be interpreted as a reduced form of more complicated models that have spatial structures. This facilitates extension to the case where firms are heterogeneous and the number of firms is arbitrary.     

Congestion,agglomeration, and the structure of cities

Congestion costs in urban areas are significant and clearly represent a negative externality. Nonetheless, economists also recognize the production advantages of urban density in the form of positive agglomeration externalities. The long-run equilibrium outcomes in economies with multiple correlated but offsetting externalities have yet to be fully explored in the literature. Therefore, I develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities. I then estimate the structural parameters of the model using a computational algorithm to match the spatial distribution of employment, population, land use, land rents, and commute times in the data. Policy simulations based on the estimates suggest that congestion pricing may have ambiguous consequences for economic welfare.     

Congestable local public goods in an urban setting

In this paper, we recognize two types of unpure local public goods (LPGs): congestable and pollutable. This paper and the forthcoming one (Clubs in an urban setting, mimeo, 1980) are devoted to congestable LPGs (CLPG). In Part I we define, classify, and characterize CLPGs. CLPGs may vary in their degree of congestability between zero, in the case of a pure LPG, and one, in the case of a private good. Spatially, we recognize two types of LPGs: the dispersed LPG (DiLPG) and the concentrated LPG (CoLPG). The first is distributed throughout the residential ring and the second is provided in specific locations to which households must travel. The second part of this paper is devoted to the investigation of the properties of a CDiLPG in an urban setting. The properties of CoLPG are investigated in (Clubs in an urban setting, mimeo, 1980). A version of Samuelson's rule as to the optimal allocation of pure public goods is extended on one hand to local dispersed public goods and on the other hand to CLPGs. Two corrective Pigouvian taxes are identified: congestion tolls levied on households, and a residential land tax. These two taxes cover total government expenditure on the LPG. The fraction of the expenses on the LPG covered by congestion tolls is α, and that covered by land taxes is (1 − α), where α is the degree of congestability. Efficiency can also be achieved by zoning the residential ring and regulating the housing density in it. This procedure may replace taxation and its advantage is that we can control a large number of externalities by a single set of zoning rules and regulations. An a posteriori rule to guide the local government as to the desirability of its actions is provided.     

Can industrial agglomeration achieve the emission-reduction effect?

This paper adopted the Meta-constraints efficiency model to measure the environmental efficiency of the industry in China, and then used the spatial panel model to analyze the impact of industrial agglomeration externalities on environmental efficiency. The study found that industrial agglomeration exerted an apparent spatial spillover effect. Different agglomeration degrees and means may be matched with different environmental effects. With the evolution of agglomeration, the balanced effects among negative externality of scale (pollution effect). Marshallian and Jacobs positive externality (self-purification effect) lead to a U-curved tendency between industrial agglomeration and environmental efficiency. Therefore, with the increase of industrial agglomeration degree, the environmental efficiency first decreases and then increases. The effect of industrial agglomeration in the Midwest on the environment is mainly presented as a negative externality of scale, situated in the descending phase of the U curve. However, the effect of eastern industrial agglomeration on the environment mainly manifested as Marshallian and Jacobs positive externalities and was situated close to the ascending phase of the U curve. All regions should fully utilize the “self-purification” effect of the Marshallian externality and the Jacobs externality on emission-reduction according to the different phases of industrial development.     

Relational consumption and nonlinear dynamics in an overlapping generations model

In this paper, we show that incorporating the relational dimension into an otherwise standard OLG model and focusing on dynamic leisure externalities leads to dramatically different predictions. Here, we show that when the old perceive private and relational consumption as substitutable goods, a series of interesting dynamic outcomes—such as local indeterminacy, nonlinear phenomena (including chaotic dynamics) and even multiple equilibria with global indeterminacy—may arise. We also draw some welfare implications and relate them to the well-known “happiness paradox” arising within contemporary affluent societies.     

Neighborhood amenities: An economic analysis

A spatial model of household and firm demand and supply of market goods is developed. Housing and neighborhood amenity markets are explicitly considered in deriving market equilibrium. The equilibrium relationships are empirically investigated, yielding important insights into the functioning of the urban economy. Attention is focused on externalities involved in neighborhood markets and the simultaneous determination of housing and amenity market equilibrium. The effect of neighborhood amenities on household equilibrium is of a major magnitude and effects of “externality” variables on both housing and amenity equilibrium are substantiated. The degree of neighborhood homogeneity and the extent of government programs aimed at neighborhood development are found to have significant impacts on housing and amenity markets.     

Indeterminacy in a finance constrained unionized economy

We introduce labor unions and unemployment in a finance constrained monetary economy with heterogenous agents and productive labor externalities. We find that unions, introducing endogenous markup variability, influence the dynamics of the model. Although a lower bound for labor externalities is always required for indeterminacy, this lower bound decreases with union power when the elasticity of substitution between capital and labor is above one. For values of this elasticity below one, this result is reversed. We also show that Hopf bifurcations may occur as union bargaining power crosses a critical value. Finally, we find that unions increase simultaneously steady state employment, capital accumulation and welfare iff the (equilibrium) marginal productivity of labor is decreasing in employment.     

Firm-strategic behavior with industry-demand externalities

This paper investigates the effects of industry-demand externalities on the firm's strategic decision making, with an industry-demand externality being defined as a change in industry demand resulting from the efforts of a particular firm to develop, advertise or price a particular product. Profit-maximization models of the firm's strategic behavior that incorporate industry-demand externalities created by a particular firm and the competitive responses of its rivals reveal that the presence of such an externality serves as an incentive for the firm to engage in the form of strategic behavior that generates the externality.     

Agent-based modeling simulation under local network externality

In general, consumer utility of network goods is affected by the entire network size. The socio-cultural-economic affinities of consumers influence the network externality processes. In this work, we treat a consumer decision as a consumer decision dynamic process. We then formulate a dynamic structural representation of a consumer network structure, structure of utility function and decision rule under the influence of local network externality concept. This formulation generates a mathematical model for a consumer decision dynamic process. The byproduct of the dynamic model leads to an agent-based simulation model. The simulation model is used to investigate different types of consumer decision dynamic market equilibriums. Moreover, prototype illustrations are given to exhibit the association between network attributes and its market equilibriums.     

Second-best policies for congestion externalities

This is the third in a series of three articles on the topic of congestion externalities. We use an urban general-equilibrium model to test the efficiency of several second-best policies for congestion externalities. The most efficient second-best policy is a program of land-use controls; the program generates a welfare gain of $3.38 per household per week. A unit tax on commuting is a less efficient policy, with a welfare gain of $1.15.     

Local public goods, property values, and local public choice

This paper examines the relationship between the benefits and costs of local public good provision and local property values within the context of the Koopmans-Beckmann-Gale location-assignment model. Property values do not in general measure accurately the marginal net benefits of local public goods; special conditions sufficient for property values to measure or bound the marginal net benefits are stated, however. In addition, it is shown that under certain circumstances, households vote for property-value-enhancing levels of local expenditures. Under these conditions, a political equilibrium produces a Lindahl solution to the local public good problem.     

Endogenous mergers under multi-market competition

This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.     

The general equilibrium effects of congestion externalities

This is the second in a series of three articles on the topic of congestion externalities. We use an urban general-equilibrium model to compute two types of cities: the market-equilibrium city, in which congestion externalities occur, and the optimum city. The optimum city has a more dispersed distribution of employment, and a more concentrated distribution of residence. If the population of the city is fixed, the optimum pricing of transportation generates a per capita welfare gain of $3.78 per week. If the population of the city is endogenous, the internalization of congestion externalities causes the city to grow.     

Linear production function,externalities and indeterminacy in a capital-resource growth model

This paper investigates the equilibrium growth dynamics of an economy whose production is based on natural resources and which seeks to maximize welfare to the local community. This involves determining the optimal trajectories of consumption in the local area and the use of the environmental resource. Economic dynamics are affected by negative environmental externalities which are explicitly included as unfavourable effects in a linear production function. The analysis shows the existence of local and global indeterminacy.     

Does public transit reduce car travel externalities? Quasi-natural experiments' evidence from transit strikes

One of the unanswered questions in the field of urban economics is to which extent subsidies to public transit are justified. We examine one of the main benefits of public transit, a reduction in car congestion externalities, the so-called congestion relief benefit, using quasi-natural experimental data on citywide public transit strikes for Rotterdam, a city with mild congestion levels. On weekdays, a strike induces travel times to increase only marginally on the highway ring road (0.017 min/km) but substantially on inner city roads (0.224 min/km). During rush hour, the strike effect is much more pronounced. The congestion relief benefit of public transit is substantial, equivalent to about 80% of the public transit subsidy. We demonstrate that during weekends, travel time does not change noticeably due to strikes. Furthermore, we show that public transit strikes induce similar increases in number of cyclists as number of car travelers suggesting that bicycling-promoting policies to reduce car congestion externalities might be attractive in combination with first-best congestion pricing.     

Scale Externalities in Korea

This paper estimates the nature and magnitude of scale externalities in a developing country, Korea, in the period 1983–1993. This is a period of rapid industry deconcentration from Seoul to other metro areas, providing a context where externalities are measured when local scale magnitudes are changing dramatically. The data allow us to examine the emerging degree of national industrial concentration in different industries, as related to their scale externality magnitudes. We also examine whether individual industries agglomerate in cities which have a comparative advantage for that industry.