We consider the problem of efficiently sharing water from a river among a group of satiable agents. Since each agent’s benefit function exhibits a satiation point, the environment can be described as a cooperative game with externalities. We show that the downstream incremental distribution is the unique distribution which both is fair according to the “aspiration welfare” principle and satisfi...

This paper applies the concept of damage coefficients introduced in Houba and Kremers (2008) to provide an estimate of the cost of climate change in particular the cost of changes in mean regional temperature and precipitation to the fruit vegetation sector. We concentrate on the production of apples in the German ‘Alte Land’ region. The estimated cost of climate change on apple-growing in the ...

In this paper we provide a nonparametric treatment of identification in models with social spillovers. We consider a setting with ‘high’ and ‘low’ type individuals. Individual outcomes depend upon the fraction of high types in one’s group. We refer to this dependence as a social spillover or peer group effect. We define estimands measuring local and global spillover strength as well as the outc...

Multiplicity of equilibria and the dependence on strong common knowledge assumptions are well-known problems in mechanism design. We address them by studying full implementation via transfer schemes, under general restrictions on agents’ beliefs. We show that incentive-compatible transfers ensure uniqueness—and hence full implementation—if they induce sufficiently weak strategic externalities. ...

In standardWalrasian macro-finance models, pecuniary externalities such as fire sales lead to overinvestment in illiquid assets or underprovision of liquidity. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. In a standard model of liquidity shocks, when liquidity is sufficiently scarce, Cour...

This paper provides an evolutionary theory of reciprocity as an aspect of preference interdependence. It is shown that reciprocal preferences, which place negative weight on the payoffs of materialists and positive weight on the payoffs of sufficiently altruistic individuals can invade a population of materialists in a class of aggregative games under both assortative and nonassortative matchin...

This paper shows that, in markets with transaction costs, even if a redundant security does not even save individual investors’ total costs for their security trading, the prices of the other securities may well be different were it to not be available for trade, resulting in a different equilibrium consumption allocation. In this sense, a redundant security may give rise to the divergence of i...

We study the co-evolution of social participation and social capital accumulation, taking the view that the former contributes to the latter, and both contribute to socially enjoyed leisure. We show that a process of substitution of private for social activities (observable in some advanced, affluent economies), might be self-reinforcing and lead to a Pareto-dominated steady state. We find some...

When scientists choose research projects with the highest expected value an externality can appear; slight variations on existing work will be selected in preference to new lines of research that would ultimately generate more value. New research enjoys two advantages: it is riskier and hence more likely to lead to high-value spin-o¤ projects and it can generate more spin-o¤ projects. Less comm...

Schelling [1969, 1971a, 1971b, 1978] presented a microeconomic model showing how an integrated city could unravel to a rather segregated city, notwithstanding relatively mild assumptions concerning the individual agents' preferences, i.e., no agent preferring the resulting segregation. We examine the robustness of Schelling's model, focusing in particular on its driving force: the individual pr...