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This chapter argues that many of the fundamental challenges of sharing economy platforms can best be understood and dealt with by considering these platforms embedded in a sociotechnical ecosystem. This perspective also enables us to formulate many crucial questions about the design, governance, and regulation of sharing economy platforms. The chapter also provides a set of differentiating dimensions that can help with classifying various sharing economy platforms, guide decisions regarding ecosystem boundaries, and shape more relevant sociotechnical questions and hypotheses for a given sharing economy. Finally, the chapter provides a few examples of ecosystem-motivated issues and questions that include a broader consideration of socioeconomic externalities, decisions about modes of platform governance and the relative weight of internal versus external regulations, and public–private partnerships.
The sharing economy is transformative in that it decentralizes services by permitting direct transactions between individuals. A less recognized consequence is that it also decentralizes the geography of services, shifting their distribution away from major business districts and into residential communities. We present a three-part generalized theory for studying and developing policy responses to the arrival of these services in neighborhoods where they were not previously available. First, one must quantify the distribution of the new services across neighborhoods. Second, these geographic shifts in supply and demand can generate positive and negative externalities for communities, which might be hypothesized and tested for empirically. Third, policy responses can be developed based on the knowledge generated by components 1 and 2. We illustrate this proposed theory by examining the incursion of Airbnb short-term rentals into the neighborhoods of Boston, MA for 2010 to 2018. We demonstrate that Airbnb listings quickly grew into neighborhoods away from the downtown core where hotels are concentrated and hypothesize how this might increase investment in local buildings (measured through building permits), activity at local food establishments (measured through the number of new licenses), and crime (measured through 911 reports). We find initial evidence for increased investment through building permits and limited evidence for increased violent crime, but no evidence for increases in food establishments. This can then guide how cities regulate short-term rentals to maximize benefits and minimize negative impacts. We conclude by exploring how the theory might be applied to other forms of the sharing economy.
The social foundations of the environmental strategy framework lie in Coaisan exchanges between companies and their stakeholders to reduce companies’ environmental impacts. A company’s environmental impacts are negative externalities in that they have consequences borne by those who did not choose to incur them. A Coasian exchange occurs when stakeholders compensate companies to reduce their production of negative externalities, resulting in outcomes that benefits the company and its stakeholders. The obstacles to Coasian exchanges are (1) search and screening costs to identify environmental improvements and stakeholders; (2) bargaining and transfer costs to negotiate terms and exchange resources; and (3) monitoring and enforcement costs to ensure both sides of the exchange uphold their obligations in the exchange. The goal of environmental strategy is to identify and mitigate these obstacles so that companies can implement environmental improvements that create value across the triple bottom line.
From an economic point of view, the substantive law is a mechanism to generate incentives towards efficient behaviour, i.e. behaviour that maximizes the social surplus. The same applies to the legal rules that the parties agree in the contracts they make. The behavioural response that legal rules aim for depends on accurate enforcement. Litigation, arbitration and other mechanisms of dispute settlement must be viewed and evaluated as tools for the accurate enforcement of legal rules. This contribution analyzes arbitration as an efficient enforcement mechanism that may be used by the parties to maximize the surplus they jointly reap from their transactions. The paper addresses the decision to be made by the parties in choosing arbitration over litigation and other tools of ADR, but also the choice between institutional and ad hoc arbitration. As it turns out, the parameters that influence these choices differ, depending on the domestic or international nature of the given transaction. However, the economics of arbitration are not only about the choices to be made by the parties. Thus, the paper also looks at the incentives faced by the arbitrators.
Giving people a great deal of freedom over how they live their lives, in and of itself, lends much scope for the egoistically inclined to act upon their instincts and to seek advantage at the expense of others. One way in which they might do this is by using the findings of behavioural science in order to manipulate others in an exchange relationship. In such circumstances, harms – or negative externalities – will be imposed upon the manipulated. I argue in this chapter that where people or organisations use the behavioural influences to further their aims, or indeed where the behavioural influences cause others to forgo what could be easily won benefits, there exists an intellectual justification for behavioural-informed regulation – or, in other words, for budge interventions. In this chapter, I further discuss some of the relevant trade-offs that must be considered when deciding whether or not to regulate, and outline the parameters of the budge framework with a few illustrative examples.
In much of the world, public transportation infrastructure is sorely needed. Political economy models suggest that provision lags because uneven access and use of public transit fragments political coalitions. Yet, traditional survey techniques tell us little about who supports valence issues, such as mass transit. I instead adopt a novel survey approach from economics designed to elicit preference intensity. I then sample households at different distances from a subway project in Bogotá, Colombia. Contra conventional expectations, I find little evidence that local geography shapes preferences. Those who use public transit the least and pay the most for its construction—the upper class—are its strongest supporters. An experiment and focus groups suggest that middle- and upper-class groups want others to take public transportation to reduce congestion and shorten their commutes. One implication is that a growing middle class might help to strengthen urban public goods provision.
The plaintiff, John Walkovsky, was struck by a taxi owned by Seon Cab Corporation while walking in New York City. Seon Cab Corp. was one of the ten cab companies owned by a group of shareholders, including William Carlton. The case highlights the harms visited on innocent parties by limited liability and shareholders’ focus on profit. A feminist rewrite would examine the costs visited upon vulnerable groups such as tort victims with limited access to the legal system, children who are likely to be more severely injured if harmed by corporate activity or by the loss of a parent so injured, and immigrants and lower-income Americans who may not have health insurance to cover the physical harms caused by corporate business. Intentional undercapitalization of corporations and an adherence to minimum insurance requirements externalizes the costs of doing business onto the rest of society. This externalization of costs is particularly harmful when it causes physical injury or death to portions of the population who cannot absorb the costs ducked by the corporation. A feminist perspective could consider the interests of these vulnerable populations in designing a limited liability doctrine that encourages entrepreneurial risk-taking while balancing it against the cost of significant corporate externalities.
In many competitive situations, our investments increase our gains: Developing better products or research proposals may lead to higher contracts or patents or larger grants. Does increasing investment in such cases always guarantee higher gains? We used an experimental repeated competition game in which prizes depended on contestants’ investments (n=108). Contestants invested more when they increased the potential prize (“enlarge the market”), yet in some cases this tendency was counterproductive (“decrease the profit”): Contestants in fact diminished their earnings, compared to sitting out the competition and keeping their initial funds. Moreover, when a contestant’s investment decreased an opponent’s prize, the contestant tended to invest less; this effect, in turn, led to higher overall gains for both contestants. This result implies that prosocial considerations are at play. Notably, in certain situations, excessive competitive tendencies may lead to a larger waste of resources.
This chapter offers a theoretical framework to understand the variation of ecolabel design based on the content, governance, and context of the label. Drawing upon green clubs and signaling theories, we suggest that ecolabels vary based on the stringency of the certification program, measured by the number and criticality of required standards, and the extent to which the requirements of these certifications incentivize the provision of public goods. We characterize important dimensions of ecolabels such as their impact, the value of the signal, and the extent to which they address externalities and information asymmetries. To illustrate these concepts, we take a closer look at GreenCo, a business sustainability rating system in India, and a sample of over 50 different agricultural ecolabels. This examination shows the important variation in factors like types of requirements, stringency, and institutional processes that govern the labels. Perhaps unsurprisingly, broader stakeholder engagement is associated with more emphasis on public benefits, while more surprisingly industry sponsorship does not tend to be found among the more lax labels with less public benefit.
This paper studies the implications of distortions in intertemporal margins for the conduct of climate policy. We do so by introducing a framework that combines a standard two-period overlapping generations (OLG) model with a tractable model of household heterogeneity, in which over-accumulation of capital arises from uninsurable idiosyncratic labor income risk. We illustrate that market-based climate policies must be adjusted when the government cannot provide full insurance to households by taxing only capital and is constrained to transfer resources across generations for risk-sharing. In a numerical exercise, we find that idiosyncratic risk leads to an optimal capital income tax rate of 35 per cent and a carbon price 7.5 per cent lower than its first best.
This study assesses the environmental damage caused by copper mining on surface water bodies in Chile. The few official records on the discharges and concentrations of arsenic and copper only allow for identifying the impacts of some mining operations in the regions of Coquimbo, Valparaíso, and O’Higgins. The economic valuation is carried out through the impact pathway approach, which relates copper production, discharges, concentrations, and dose-response coefficients to establish effects on health and agriculture. The results show that the economic damage due to water pollution occurs mainly in the regions of Coquimbo and O’Higgins. The above is explained because the greatest externalities are generated in agricultural areas, while the damage to health is low because of the small population exposed (97.6% versus 2.4%). Finally, total damages represent 0.43%, 0.26%, and 0.0001% of copper sales in the mining operations analyzed in the regions of Coquimbo, O’Higgins, and Valparaíso, respectively.
This Article considers one aspect of the ongoing debate about the moral limits of markets – namely, the purported harmful effects of market transactions on particular relations, goods, services, or society at large, due to an inappropriate valuation. In other words, the argument is that some markets are ‘repugnant’ because they degrade and corrupt a variety of nonmarket values and relations, not just to the willing parties to the exchange, but to larger segments of society. This objection contains both a (frequently unacknowledged) empirical component and a moral component. This Article critiques these empirical claims on two grounds. First, market skeptics fail to provide evidence of the negative effects they hypothesize, despite widespread variation over time and across legal regimes. Second, these objections fail to account for the well-documented human tendency to fashion repugnant exchanges in a manner that reinforces – rather than undermines – deeply held values and relationships.
Our review of climate economics begins with the Kaya identity, which portrays our emissions pathway not as a smooth glideslope to net zero but as a tug of war between opposing forces. We then review the stunning impact that continued compounded economic growth could have on the ability of future generations to adapt to climate change, particularly in the Global South. The concepts of externalities and market failures are considered, along with the widely held view that a significant element in any climate solution will need to be some form of carbon tax. The recognition that mitigation comes at a cost leads to the question of climate cost/benefit analysis and the notion that the economically optimal quantum of further climate change that rational actors might prefer would not necessarily be zero. We close by pivoting to fat tails and the extent to which opting for some economically optimal amount of climate change may expose the future to small probabilities of utterly unacceptable outcomes and therefore unjustifiable risks.
Groundwater management appears to be reaching the end of its theoretical development. Principles of resource governance are increasingly expanding the social elements incorporated into groundwater policy, akin to social externalities. What is missing is the inclusion of additional physical externalities resulting from groundwater extraction, like subsidence, storage space development, water quality, biology, geothermal heating and cooling, and other aquifer properties. Like the increasing application of transdisciplinary approaches to groundwater policy, the application of a transresource approach could include these additional resources indirectly associated with groundwater use. This approach complicates the traditional perception of groundwater as a public resource, as aquifers are a combination of public and private property rights. Several examples represent the inclusion of transdisciplinary approaches, but none appear to include transresource approaches that signify a transition to aquifer governance.
The growing prevalence of clean energy raises the question of possible associated externalities. This article studies the effects of nuclear power plant development (and, as a result, the increased amount of water in the atmosphere from evaporative cooling systems) on nearby crop yields and finds that an average nuclear power plant increases local soybean yields by 2 and corn yields by 1 percent. Considering the low elasticity of demand for these crops, the yield increases translate to annual net benefits of $229 million (2020 US dollars) – $317 million in losses to farmers and $546 million in benefits to consumers.
This topic relates to capital budgeting. The starting point is an explanation of why investment analysis is important in managerial economics, and the different types of investment and investment decision. Cash flow analysis and the principles involved in identifying and measuring relevant cash flows is discussed. The concept of risk and types of risk, stand-alone risk, within-firm risk and market risk, are discussed. The security market line (SML), beta coefficients and the capital asset pricing model (CAPM) are explained. The cost of capital is examined, explaining the calculation of the cost of debt, the cost of equity and the weighted average cost of capital (WACC). Methods of evaluation of individual projects are discussed, with a focus on net present value (NPV) and internal rate of return (IRR). There is a discussion of the determination of the optimal capital budget for a firm, in terms of the investment opportunity schedule (IOS) and the marginal cost of capital (MCC), with the distinction between mutually exclusive projects and independent projects. Case studies include two resource-heavy situations: the HS2 rail link and 5G telecommunications.
This topic examines government policy and regulation. The starting point is the objectives of government regulation and market failure. The implications for managerial decision making are outlined. The nature of market failure and its different aspects are discussed. Externalities are discussed, and the policy implications. Public goods, and their nature and policy implications, are examined. Imperfect information and the policy implications are discussed. Transaction costs are discussed. Monopoly and the nature of market power and its consequences are examined. Strategic behaviour, such as collusion, predatory pricing and exclusive dealing, is discussed. The distinction between structural and strategic barriers to entry and their different policy implications is explained. Aspects of new technology are discussed, such as network effects and the ‘winner-takes-most’ phenomenon. Various policy approaches and their costs and benefits are examined. Case studies involve two situations in the UK where governments may have made errors of policy. A final case study relates to the global phenomenon of increasing concentration and its consequences.
Political economists assume that global externalities, such as pandemics and climate change, require global or multi-national solutions. Yet, many aspects of these externalities can be addressed at the micro-level. As Elinor Ostrom pointed out, what scholars perceive as global externalities are in fact nested externalities that are organized in multiple, overlapping scales. By drawing on Ostrom's oeuvre, we explore the notions of nested externalities, polycentricity, and co-production in the context of pandemic governance. We highlight two crucial features of pandemics: first, preventative measures such as social distancing are co-production processes that cannot be provided by governments alone. Second, pandemics, much like climate change, pose nested externalities problems at different levels. Thus, pandemic externalities are better viewed as collective action problems arranged at multiple, nested, and/or overlapping scales. Finally, we propose an alternative institutional take that considers the nestedness of pandemic externalities and the diversity in institutional conditions across jurisdictions.
If the logic of markets is that price equals value, sometimes there are forms of value that fall outside of what markets are able to recognize. We call this phenomenon market failure. It is not a personal or institutional failure or even a failure of economic theory, just a limitation of markets as a medium. Our core case study is of the opening of Tate Modern. The museum revitalized the Southwark area of London and increased property values sometimes 500%. The museum relied on philanthropy and government support and was not able to capture all of the value it created. We consider two very different methods economists use to evaluate these situations: contingent valuation method and economic development study. We compare and contrast the approaches taken by the Guggenheim and the Tate. We explore concepts of market failure including public goods, externalities, tragedy of the commons, free-rider problems, adverse selection, and moral hazard.
Most historians and social scientists treat cities as mere settings. In fact, urban places shape our experience. There, daily life has a faster, artificial rhythm and, for good and ill, people and agencies affect each other through externalities (uncompensated effects) whose impact is inherently geographical. In economic terms, urban concentration enables efficiency and promotes innovation while raising the costs of land, housing, and labour. Socially, it can alienate or provide anonymity, while fostering new forms of community. It creates congestion and pollution, posing challenges for governance. Some effects extend beyond urban borders, creating cultural change. The character of cities varies by country and world region, but it has generic qualities, a claim best tested by comparing places that are most different. These qualities intertwine, creating built environments that endure. To fully comprehend such path dependency, we need to develop a synthetic vision that is historically and geographically informed.