Local externalities and societal adoption of technologies

In this paper we study the effect of local network externalities on the societal adoption of competing technologies. Three cases are examined: single non-sponsored technology, single sponsored technology, and two non-sponsored technologies. The efficiency and predictability of the technology adoption process for each case is investigated. We demonstrate non-predictability for single technology case and efficiency for the two technology case. We show the firm sponsoring a technology may choose a strategy that leads to the extinction of the technology.     

Endogenous timing in the switching of technology with Marshallian externalities

We analyze endogenous timing in the switching of technology. Each user chooses when to purchase a new product which embodies new technologies characterized by Marshallian externalities. The technological switch occurs when a large number of users purchase new products. Under complete information, multiple market equilibria exist, and one of the equilibria in which technological switching occurs is efficient. However, if we introduce even a small amount of uncertainty, the switch is delayed in the unique equilibrium under perfect competition, resulting in a loss of social welfare. The market power of a monopolistic supplier of new products alleviates this inefficiency.     

Spatial-dynamic seawater intrusion and pumping cost externalities in a confined aquifer

This paper analytically develops the economic theory of seawater intrusion in confined aquifers and, in the process, creates generally applicable solution methods for illuminating steady-state spatial externality relationships for other spatial-dynamic diffusion resource management issues. By linking a confined aquifer and its unconfined recharge region with a dynamic boundary condition neglected in the economics literature, we introduce the physical realities that generate spatial externalities in all renewable confined aquifers. We derive spatial-dynamic first-order conditions for optimal extraction and characterize the policy relevant spatial-dynamic pumping cost and seawater intrusion cost externalities with hydrological assumptions appropriate to the different dynamic timescales of system components and the focus on seawater intrusion. For confined aquifers, we prove the marginal seawater intrusion cost externality decreases linearly in distance from the coast. Moreover, we demonstrate that the marginal seawater intrusion cost externality generally exceeds marginal pumping costs near the coast, implying substantial divergence between optimal and common property extraction near the coast, and significant divergence may extend to the inland aquifer boundary depending on both the magnitude and shape of the revenue function relative to extraction costs and aquifer parameters.     

First-best health policy in vaccine markets with health and network externalities

This paper considers an oligopolistic market for a vaccine, characterized by negative network effects, which stem from the free-riding behavior of individuals engaged in a vaccination game. Vaccine markets often suffer from three imperfections: high concentration, network effects, and a health externality (contagion). The first conclusion of the paper is that the negative network externality is important as a market distortion, as it may lead to significant welfare losses. The second and main part of the paper develops a two-part per-unit subsidy scheme that a social planner could use to target both consumers and producers of vaccines. The scope of such a subsidy scheme to induce the firms to produce the first-best output without network effects (which is the most ambitious first-best target) is investigated. In many cases, while the first-best is attainable, it requires negative prices for vaccines, which amounts to rewarding consumers to induce them to vaccinate.     

A dynamic game for fiscal federalism with non-local externalities

We address the questions of the patterns and the efficiency of public intervention in a dynamic game model between public agencies in charge of a non-local externality. We give two examples: pollution spreading between water basins (negative externality), and non-uniform contributions from the elite and from the mass to a cultural background (positive externality). We define two extreme cases, depending on whether or not the receiving end of the externality balances the transmitting end. When both balance, the reactivity of the agency structure is strong and the need for redistribution between them is weak. When they do not balance, the externality is more markedly non-local and redistribution is required to balance the fiscal burden (or product) from pigouvian instruments among all beneficiaries. We show that, with a static rule of redistribution that allows them to compute transfers between them as a function of their own strategies, the decentralized agencies' reactivity is somewhat slowed, but they still react faster and more efficiently than a static central agency.     

Negative externalities on property values resulting from water impairment: The case of the Pigeon River Watershed

The objective of this research was to determine whether willingness to bear the negative externality from water quality impairment differs between those who do and those who do not receive economic benefit from the impairment source. Differences were tested using a hedonic analysis of ambient water quality in two discrete housing markets in the Pigeon River Watershed, which have been polluted by the operation of a paper mill. The results suggest that North Carolina residents residing in subwatersheds with impaired portions of the Pigeon River, who experience economic benefit from the paper mill in addition to its harmful effects on water quality, do perceive the pollution as a negative externality. In contrast, the effects of both the degraded river and its contributing streams on property values are perceived as negative externalities by watershed residents in Tennessee who experience only harmful effects from the pollution. Differences in willingness to bear the water-impairment externality were not indicated by variables representing view of and proximity to impaired water bodies. The results suggest that the perception of water quality to which property owners implicitly apply value should be considered when establishing water-quality regulations.     

An evolutionary stable strategy for retailers selling complementary goods subject to indirect network externalities

A two-population evolutionary game model is constructed for retailers and used to investigate the effect of indirect network externalities (INEs) and product complementarity on the strategic choice of marketing objective of the retailers. The results show that their strategic choice of marketing objective is correlated with market reservation price (MRP) when the strength of the INE is low. When the MRP is low, the retailers tend to adopt a strategy of profit maximization. As MRP increases, low-cost retailers adopt a strategy of revenue maximization instead of profit maximization to maximize revenue at an earlier stage than high-cost retailers. However, when the strength of the INE is high, retailers only choose a strategy of revenue maximization as their marketing objective. The probability that a retailer uses a revenue maximization strategy increases as the strength of the INE grows, and product complementarity increases, when there is an equilibrium between two pure marketing objective strategies. An optimal preference ratio for retailers may exist when the strength of INE is found to be not large enough. Numerical examples reveal that the degree of preference of retailers to maximize profit is shown to be negatively correlated with both INE and product complementarity. On the other hand, their profits are positively correlated with both of these factors.     

网络外部性下基于投资溢出的企业合作研发博弈模型

本文建立了网络外部性环境下基于投资溢出的企业合作研发博弈模型,研究了企业合作研发策略,分析了网络外部性、兼容性以及投资溢出等对企业合作研发动机、企业利润和社会福利等的影响。研究表明,合作研发能提高企业利润和社会福利;兼容性较大或外部性较小时,提高产品外部性会增强企业合作研发意愿;提高兼容性或投资溢出则始终会增强企业合作研发意愿,提高企业利润和社会福利。因此,政府应鼓励企业生产高网络外部性和高兼容性的产品,并增强投资溢出效应,激励企业投入更多研发资源,提高企业利润和社会福利。     

Social externalities of women empowerment: Evidence from suffrage movements of late nineteenth and early twentieth century United States

Previous literature suggests that empowering women is associated with children's improved outcomes. However, little is known about its effects on children's later-life crime and incarceration. We argue that women empowerment through suffrage law changes during the late nineteenth and early twentieth centuries in the US generated incentives for women to invest in their children's human capital. The accumulated human capital then has the potential to reduce future incarceration of children. We use full-count censuses 1920–1930, implement a difference-in-difference framework, and empirically show that childhood exposure to suffrage laws is associated with considerable reductions in incarceration. The effects appear to be primarily driven by decreases in male and Black incarceration. The balancing tests rule out the concern that the effects are driven by demographic compositional changes or endogenous changes in other state-level characteristics. Furthermore, an event-study analysis rejects the concern that the effects are driven by preexisting trends in incarceration among exposed cohorts. The findings of this research note offer informative implications for overlooked externalities of women empowerment in a historical setting.     

Information and crowding externalities

Summary. We analyze a model in which agents have to make a binary choice under incomplete information about the state of the world, but also care about coordination with other agents who have the same problem. In some of these situations, the larger the share choosing the same alternative, the better off are agents. In others, if too many people choose the same alternative, agents could be worse off, due to crowding externalities. Agents receive public and private information about the state of the world. We determine whether agents rely more on private or public information, and whether or not their choice behavior is socially efficient. We characterize existence conditions for equilibria in which either all available information, or only the public information is used for decisions, compare the two equilibria in terms of welfare, and analyze the effects of better information. Surprisingly, increasing signal accuracy may be welfare decreasing.Received: 24 March 2004, Revised: 19 November 2004, JEL Classification Numbers: D82. Correspondence to: C. Robert ClarkWe would like to thank Ig Horstmann, Gilbert Laporte, Andrew Leach, Matthias Messner, Bernard Sinclair-Desgagné, Howard Thomas, Nicholas Yannelis, and two anonymous referees for helpful comments. The first author wishes to acknowledge the Strategic Research Grant he received from HEC Montreal for this project.     

外部性的本质与分类

外部性概念至今仍模糊不清,其原因就在于研究的外部性对象并不一致。从系统论出发,以行为方为核心,通过其影响范围的延伸,将外部性划分为科斯外部性、马歇尔外部性和庇古外部性三种类型,进一步明晰了外部性的轮廓,区分了简单外部性和复杂外部性。在此基础上,揭示了外部性的本质,即受影响方的决策非参与性和缺乏有效的反馈机制。明确了外部性的定义,同时引入外部性系数,将外部性研究从定性研究引向定量研究。     

Investment timing and learning externalities

We study a duopoly model of investment, in which each player learns about the quality of a common value project by observing some public background information, and possibly the experience of his rival. Investment costs are private information, and the background signal takes the form of a Poisson process conditional on the quality of the project being low. The resulting attrition game has a unique, symmetric equilibrium, which depends on initial public beliefs. We determine the impact of changes in the cost and signal distributions on investment timing, and how equilibrium is affected when a first-mover advantage is introduced.     

Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences

The effects of consumption and production externalities on economic performance under time non-separable preferences are examined both theoretically and numerically. We show that a consumption externality alone has long-run distortionary effects if and only if labor is supplied elastically. With fixed labor supply, it has only transitional distortionary effects. Production externalities always generate long-run distortions, irrespective of labor supply. The optimal tax structure to correct for the distortions is characterized. We compare the implications of this model with those obtained when the consumption externality is contemporaneous. While some of the long-run effects are robust, there are also important qualitative and quantitative differences, particularly along transitional paths.     

International trade and consumption network externalities

This paper studies the effects of trade liberalization in the presence of consumption network externalities. The framework is applicable to the choice of network products and sheds light on the debate on globalization and culture. In an extended Ricardian model of international trade the paper shows that: (i) trade is not Pareto inferior to autarky if the free trade equilibrium is unique; (ii) trade is not Pareto superior to autarky if both countries are diverse (network competition) under free trade, but can be if each country is homogenous (network monopoly); (iii) and when multiple free trade equilibria exist everybody in a country can lose from free trade if that country is homogenous under autarky. Consumers of imported network goods tend to gain, while consumers of exported network goods tend to lose from trade liberalization.     

Ecosystems,externalities, and economies

This paper incorporates an ecosystem model into a model of a simple economy. The decisionmaking agents in the ecosystem are individual organisms aggregated to the species level. A species may provide utility directly to humans, or it may provide utility indirectly because it is used either as a raw material in goods fabrication or as sustenance for other species. We describe a comparative static equilibrium of the ecosystem where species' demands for other species are equal to the supplies of those other species, and energy is conserved. The ecosystem is then embedded in the economy so that the effects of human intervention can be traced through both the ecosystem and the economy. Human intervention creates ecosystem externalities such that ecosystem equilibria are shifted and the new equilibria affect the utility or the production processes of other humans. This framework allows us to describe in principle which ecosystem services can be efficiently usurped by humans, which waste flows can be efficiently allowed into ecosystems, and which ecosystem organisms and physical attributes can be efficiently maintained.     

Contracting with externalities and outside options

This paper proposes a model of multilateral contracting where players are engaged in two parallel interactions: they dynamically form coalitions and play a repeated normal form game with temporary and permanent decisions. We show that when outside options are independent of the actions of other players all Markov perfect equilibrium without coordination failures are efficient, regardless of externalities created by interim actions. Otherwise, in the presence of externalities on outside options, all Markov perfect equilibrium may be inefficient. This formulation encompasses many economic models, and we analyze the distribution of coalitional gains and the dynamics of coalition formation in four illustrative applications.     

Network externalities and long-run market shares

We study a dynamic duopoly model with network externalities. The value of the product depends on the current and past network size. We compare the market outcome to a planner. With equal quality products, the market outcome may result in too little standardization (i.e. too many products active in the long run) but never too much. The potential inefficiency is non-monotonic in the strength of the network effect, being most likely for intermediate levels. When products differ in quality, an inferior product may dominate even when the planner would choose otherwise, but only if the discount factor is sufficiently large     

Economics of externalities and public policy

In this paper we study a particular case of “multiple” externalities associated to the production of a good/activity, whose external effects can change from positive to negative depending on the level of output (intersecting externalities). To analyze their impact on the public policy we propose a very simple two-agent partial equilibrium model in the technological context of externalities. In a static framework, the centralized solution always implies an optimal policy, which may consist of taxation or subsidization depending on the individual optimum and on the technology parameters. In a dynamic model with local knowledge of the efficiency function and instantaneous output adjustments, such an optimal policy can be structurally stable or unstable. In the latter case, under small changes of the parameters the policy may switch from low taxation/subsidization to high taxation/subsidization or vice versa, or even jump discontinuously from taxation to subsidization or vice versa. Furthermore, the decentralized solution based upon “tradable rights” can be economically equivalent to the centralized solution in the form of taxation policy but the two solutions may be not politically equivalent.

Individual protection against property crime: decomposing the effects of protection observability

Abstract.  We re-examine the efficiency of observable and unobservable crime protection decisions with new results and insights. Observable protection is unambiguously associated with a negative externality. At the individual level, it reduces the crime effort, but its unit payoff remains unchanged. Conversely, unobservable protection reduces the unit payoff and has no effect on the crime effort exerted, though it deters crime globally. A decrease in the global crime payoff is detrimental to a victim if protection is observable, while it is beneficial when unobservable. While observable protection has a positive diversion effect, it has the opposite effect when unobservable.