Public goods in networks

This paper considers incentives to provide goods that are non-excludable along social or geographic links. We find, first, that networks can lead to specialization in public good provision. In every social network there is an equilibrium where some individuals contribute and others free ride. In many networks, this extreme is the only outcome. Second, specialization can benefit society as a whole. This outcome arises when contributors are linked, collectively, to many agents. Finally, a new link increases access to public goods, but reduces individual incentives to contribute. Hence, overall welfare can be higher when there are holes in a network. © 2006 Elsevier Inc. All rights reserved.

Burning a hole in the budget: tobacco spending and its crowd-out of other goods.

Smoking is an expensive habit. Smoking households spend, on average, more than $US1000 annually on cigarettes. When a family member quits, in addition to the former smoker's improved long-term health, families benefit because savings from reduced cigarette expenditures can be allocated to other goods. For households in which some members continue to smoke, smoking expenditures crowd-out other purchases, which may affect other household members, as well as the smoker. We empirically analyse how expenditures on tobacco crowd-out consumption of other goods, estimating the patterns of substitution and complementarity between tobacco products and other categories of household expenditure. We use the Consumer Expenditure Survey data for the years 1995-2001, which we complement with regional price data and state cigarette prices. We estimate a consumer demand system that includes several main expenditure categories (cigarettes, food, alcohol, housing, apparel, transportation, medical care) and controls for socioeconomic variables and other sources of observable heterogeneity. Descriptive data indicate that, comparing smokers to nonsmokers, smokers spend less on housing. Results from the demand system indicate that as the price of cigarettes rises, households increase the quantity of food purchased, and, in some samples, reduce the quantity of apparel and housing purchased.

Public goods and procreation.

Procreation is the ultimate public goods problem. Each new child affects the welfare of many other people, and some (but not all) children produce uncompensated value that future people will enjoy. This essay addresses challenges that arise if we think of procreation and parenting as public goods. These include whether individual choices are likely to lead to a socially desirable outcome, and whether changes in laws, social norms, or access to genetic engineering and embryo selection might improve the aggregate outcome of our reproductive choices.