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Externalities (Economics)

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Emran and Shilpi use survey data from Bangladesh to present empirical evidence on externalities at household level sales decisions resulting from increasing returns to marketing. The increasing returns that arise from thick market effects and fixed costs imply that a trader is able to offer higher prices to producers if the marketed surplus is higher in villages. The semi-parametric estimates identify highly nonlinear own and cross commodity externality effects in the sale of farm households. The vegetable markets in villages with low marketable surplus seem to be trapped in segmented local market equilibrium. The analysis points to the coordination failure in farm sale decisions as a plausible explanation for the lack of development of rural markets even after market liberalization policies are implemented. This paper--a product of Rural Development, Development Research Group--is part of a larger effort in the group to understand the process of development of rural markets. The authors may be contacted at fshilpi@worldbank.org or emran@stanford.edu.

Externalities (Economics)

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We develop a framework to study analytically and quantitatively relentless cross-border casino competition with social-disorder and income-creation externalities. Two bordering casinos compete with each other for the external source of demand of recreational and problem gamblers from the neighboring city and the two city governments set their optimal casino revenue tax and gambler tax surcharge to maximize social welfare. We show that cross-border casino gambling makes aggregate casino demand more elastic despite the addictive nature of gambling. While a lower commuting cost favors a cross-border casino in a city with a weaker taste for gambling, the positive scale effect of its own population may be offset by a negative effect on cross-border gambling. By calibrating the model to fit the Detroit-Windsor market, we find that cross-border competition induces both cities to lower casino taxes to below their pre-existing rates, while the optimal tax mix features a shift from the tax surcharge to the casino revenue tax. Our counterfactual analysis suggests that lowering the commuting cost to the pre-911 level need not have favored Windsor, whereas increasing Detroit's population to the 2000 level would have only given Windsor a modest welfare gain.

Externalities (Economics)

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A common theme which runs through much of the investment literature is that private incentives may lead to sub-optimal levels of investment activity. The idea has been extended casually to consideration of human capital investment as well. It is sometimes contended that decisions, made by parents, have adverse effects on their offspring, which could be prevented if inter-generational contracts could be struck. If so, a case can be made for government intervention or subsidization programs to alleviate these intergenerational externalities. Specifically, the sub-optimal investment in offspring human capital may take such obvious forms as poor clothing, too little health care, or too few resources devoted to the child's education. Less obvious externalities may result when parents underinvest in themselves because they fail to consider spillover benefits to their children. Parental schooling, for example, may affect the child's ability (or desire) to learn. Dietary patterns established by parents for themselves may influence the child's eating habits and affect his health. More directly, healthy parents are less likely to transmit diseases to their offspring. This paper will examine the effects of these intergenerational externalities in greater detail.

Externalities (Economics)

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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Emran and Shilpi use survey data from Bangladesh to present empirical evidence on externalities at household level sales decisions resulting from increasing returns to marketing. The increasing returns that arise from thick market effects and fixed costs imply that a trader is able to offer higher prices to producers if the marketed surplus is higher in villages. The semi-parametric estimates identify highly nonlinear own and cross commodity externality effects in the sale of farm households. The vegetable markets in villages with low marketable surplus seem to be trapped in segmented local market equilibrium. The analysis points to the coordination failure in farm sale decisions as a plausible explanation for the lack of development of rural markets even after market liberalization policies are implemented. This paper--a product of Rural Development, Development Research Group--is part of a larger effort in the group to understand the process of development of rural markets. The authors may be contacted at fshilpi@worldbank.org or emran@stanford.edu.

Externalities (Economics)