Externality | EPFL Graph Search

In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morning. The p

Quantifying and allocating net positive environmental externalities from Swiss cleantech innovations

Kristina Carmelita Nangle

This Master thesis is meant to be the first step toward working to quantify the environmental impacts of Swiss cleantech industry when implemented abroad and how this knowledge can help frame new policy approaches to foster this important industry. The reduction of environmental impacts and the resulting net positive externalities are currently primarily attributed to the implementer with little consideration given to the innovator. If rewarding the upstream chain based on downstream environmental benefits would help the industry flourish, how could this be achieved? How should the environmental benefits be allocated throughout the innovation chain? These questions will be explored in this thesis.

2018

Essays on the Economics of Innovation: Incentives, Diffusion, and Disparity

Ling Zhou

As an important policy instrument for guiding innovation, the patent system involves a long-standing tension between creating economic rewards for the original innovators and stifling subsequent R&D activities. The availability of new data allows us to provide unique sights into understanding how effective patents are in providing incentives for innovation and how firms' disclosure of proprietary assets affects the dissemination of knowledge. On the other hand, innovation per se is the fruit of human intellect. The knowledge workforce is, therefore, a crucial component of a country's innovative capacity. The persistent gap in the participation in innovative activities between men and women reflects a misallocation of talented human capital and leaves opportunities for policy implementation. This dissertation ties the questions mentioned above and presents novel evidence on the incentives, diffusion, and disparity in innovative activities. The first essay (chapter 2), in collaboration with Gaétan de Rassenfosse, provides empirical evidence on the real effect of patent expiration on monopoly prices and explores how this effect varies with product market competition. We compile a novel dataset that links patents to consumer products and retail prices for these products from Amazon.com. We find that patent expiration leads to a 7--8 percent drop in product prices. This effect is heterogeneous by patent type and importance and starts one year in advance. We also find a more substantial decline in prices in product markets where competition is intense, consistent with evidence from the pharmaceutical industry. We argue that incumbent innovators lower prices preemptively in the face of generic competition. The second essay (chapter 3), in collaboration with Gaétan de Rassenfosse, studies how firms' disclosure of innovative assets affects the diffusion of inventions. We focus the empirical setting on firms' provision of constructive notice through virtual patent marking (VPM) and exploit patent-level variation in the marking dates. With data collected on marked patents from the VPM web documents of 16 firms, we find an overall effect of VPM is small. However, conditional firms' strong reliance on patents as an appropriability regime, our findings suggest that while VPM induces firms to build subsequent internal inventions on the ones that are commercially valuable, it fends off diffusion to external firms and reduces similarity between inventions. Last but not least, in the third essay (chapter 4), collaborated with Mary Kaltenberg, we explore the role of family policies in closing the innovation gender gap. By matching inventor data to web-scraped inventor age information, we exploit the staggered passage of maternity leave policies across the U.S. and evaluate its impact on the retention and productivity of female inventors. Our findings suggest that maternity leave policy supports women of reproductive ages stay longer in patenting but has little impact on their productivity.

EPFL2021

Essays in Bank Financing

Yalda Sigrist

This thesis examines the optimal mode of financing for banks and financial institutions. The first chapter, which is a joint work with Prof. Jean-Charles Rochet, investigates how Systemically Important Financial Institutions (SIFIs) should be financed. The main specificity of such firms is that their failure imposes negative externalities on the financial system and, more broadly, on the whole economy. Since their shareholders do not internalize these externalities, they tend to provide less capital than what would be socially optimal, generating too many failures. In jurisdictions where they receive tax exemptions, CoCo bonds are a simple means of increasing the resilience of SIFIs while providing large tax benefits to banks' shareholders. However, we show that when tax revenues are properly accounted for, these CoCo bonds are detrimental to social welfare. The second chapter provides a formal model of a bail-in plan, a pre-defined contract that results in self-recapitalization of a financial institution when it is in distress and has no access to equity financing. Bail-ins have the potential to eliminate inefficient bank liquidations and ease financing constraints in bad times. Using a theoretical model of a bail-in contract where banks face time varying financing frictions, taxation and liquidation costs, I show that banks' capital structure decisions and optimal financing and pay-out policies are largely affected by the design of the contingent capital (specifically the conversion ratio). However independent of its design, for an optimal level of debt, bail-in contracts always decrease shareholders incentives to build up liquid buffers and to recapitalize in good times but also eliminate any risk-taking incentives. The third chapter presents a model of bank optimal maturity structure when banks face systemic risk through correlated investments. Banks can privately affect the probability of success of their projects. Risky short-term debt can act as a disciplinary device if it is not rolled over when an adverse interim-date signal on the quality of banks' assets is received. The optimal maturity structure is the result of the trade-off between the disciplinary benefits of short-term debt and the costs of inefficient early liquidations. I show that bank asset commonality affects this trade-off since it reduces the costs of exerting effort through positive information synergies and increases the inefficiency of early liquidations through negative fire-sale externalities. In particular, there is a more important role for the disciplinary effects of short-term debt in high correlation, high fire-sale externalities and low information synergies environments.

EPFL2017