Richard Cornes

Bio: Richard Cornes is an academic researcher from Australian National University. The author has contributed to research in topics: Public good & Nash equilibrium. The author has an hindex of 35, co-authored 121 publications receiving 7554 citations. Previous affiliations of Richard Cornes include Keele University & Center for Economic Studies.

The Theory of Externalities, Public Goods, and Club Goods

Abstract: This book presents a theoretical treatment of externalities (i.e. uncompensated interdependencies), public goods, and club goods. The new edition updates and expands the discussion of externalities and their implications, coverage of asymmetric information, underlying game-theoretic formulations, and intuitive and graphical presentations. Aimed at well-prepared undergraduates and graduate students making a serious foray into this branch of economics, the analysis should also interest professional economists wishing to survey recent advances in the field. No other single source for the range of materials explored is currently available. Topics investigated include Nash equilibrium, Lindahl equilibria, club theory, preference-revelation mechanism, Pigouvian taxes, the commons, Coase Theorem, and static and repeated games. The authors use mathematical techniques only as much as necessary to pursue the economic argument. They develop key principles of public economics that are useful for subfields such as public choice, labor economics, economic growth, international economics, environmental and natural resource economics, and industrial organization.

The theory of externalities, public goods, and club goods: Homogeneous clubs and local public goods

Abstract: A club is a voluntary group of individuals who derive mutual benefit from sharing one or more of the following: production costs, the members' characteristics, or a good characterized by excludable benefits. When production costs are shared and the good is purely private, a private good club is being analyzed (McGuire 1972; Wiseman 1957). If membership characteristics differ and motivate sharing, then membership fees will differ among members (DeSerpa 1977; Scotchmer 1994b; Scotchmer and Wooders 1987). Such fees are nonanonymous , inasmuch as a fee structure is related to the identity and attributes of a member. The focus of our analysis is the sharing of an excludable (rivalrous) public good, which we term a club good . Unless otherwise specified, crowding is assumed to be independent of the individual and hence anonymous. A number of aspects of the club definition deserve highlighting. Privately owned and operated clubs must be voluntary; members choose to belong because they anticipate a net benefit from membership. Thus, the utility jointly derived from membership and from the consumption of other goods must exceed the utility associated with nonmembership status. Furthermore, the net gain in utility from membership must exceed or equal membership fees or toll payments. This voluntarism serves as the first characteristic by which to distinguish between pure public goods and club goods. In the case of a pure public good, voluntarism may be absent, since the good might harm some recipients (e.g., defense to a pacifist, fluoridation to someone who opposes its use).

Easy riders, joint production, and public goods*

Abstract: The conventional wisdom on pure public good provision has certain accepted propositions:' (i) As group or community size increases, easy (or free) riding2 and its associated suboptimality also increase (Olson, I965). (2) The stability of Nash (or Nash-Cournot) equilibrium solely depends on the sign and magnitude of an inycome effect (see, for example, Breton, I970, p. 574; Olson and Zeckhauser, I966; Pauly, I970, p. 574; Williams, I966, p. 2I). (3) Nash behaviour always leads to inefficiency for public goods (Pauly, I970). (4) A model with identical individuals has a symmetric equilibrium where everyone provides the same equilibrium quantity of a pure public good (Olson, I965). (5) There is no measure for the extent of easy riding. These are important propositions that are universally used and accepted in public finance. This article explores the comparative statics of the demand for a marketed good that jointly provides public and private outputs or characteristics. Once joint products are admitted to the analysis of public goods, we demonstrate that propositions (I)-(4) no longer hold. In particular, the analysis shows that the consumption relationship of the jointly produced outputs influences the slope of the expenditure reaction paths, the stability of equilibria, and the departure of Nash equilibria from optimality (i.e. the extent of easy riding). When the joint products are complements in a Hicksian sense, particularly interesting results follow including the possibilities of positively sloped reaction paths and of reduced easy riding as the size of the community is increased. Thus, an agent's public expenditures may increase in response to increased public expenditures of others, even when all goods are normal with positive income elasticities. Such a result may well apply to an activity like philanthropy, where charitable activities provide private as well as public benefits to contributors (see, Sugden, I982; Posnett and Sandler, I983). Even in the absence ofjointness, this article demonstrates that propositions (i) and (4) are not valid. Furthermore, a simple, but useful, geometric technique is presented. This device can generate reaction paths and an index of easy riding, whose existence disproves proposition (5). Additionally, we derive the stability conditions for an n-person public good model. In Section V the theoretical results are applied to the study of a military alliance, where an arsenal jointly produces private and public outputs. This

Asymmetric contests with general technologies

Abstract: We investigate the pure-strategy Nash equilibria of asymmetric, winner-take-all, imperfectly discriminating contests, focussing on existence, uniqueness and rent dissipation. When the contest success function is determined by a production function with decreasing returns for each contestant, there is a unique pure-strategy equilibrium. If marginal product is also bounded, limiting total expenditure is equal to the value of the prize in large contests even if contestants differ. Partial dissipation occurs only when infinite marginal products are permitted. Our analysis relies heavily on the use of ‘share functions’ and we discuss their theory and application.

The theory of externalities, public goods, and club goods: Externalities and private information

Abstract: The analysis in Chapter 4 suggests that in a world of zero transaction costs, where participants in an exchange know the relevant characteristics of each other's preferences, technology, and endowments, mutually advantageous bargaining opportunities will not be ignored. The individuals may be expected to agree on a Pareto-efficient allocation. The traditional Pigouvian tax/subsidy literature, by contrast, assumes at the outset that equilibrium outcomes may indeed be inefficient. In particular, it presupposes that existing markets will not function in such a way as to eliminate all potential sources of inefficiency and that the introduction of taxes and subsidies into a market system can help by confronting individuals with those costs and benefits that their consumption and production activities generate for other parties and that are not internalized by the market mechanism. In order to justify the possibility of inefficiency in equilibrium, we need to examine more closely the idea of positive transaction costs. We hinted earlier that one way of thinking about such costs is to see them as arising from the presence of private information. Participants in an exchange may know their own preferences, endowments, and technology but may not be so well informed about the relevant characteristics of other potential participants. In analyzing the bargaining process that leads to an equilibrium, it is important to consider carefully the precise nature of the process, the information available to each party, and the implications of such matters for the properties of the equilibrium.

Endogenous Technological Change

Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

Endogenous Technological Change

Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

Increasing Returns, Path Dependence, and the Study of Politics

Abstract: It is increasingly common for social scientists to describe political processes as “path dependent.” The concept, however, is often employed without careful elaboration. This article conceptualizes path dependence as a social process grounded in a dynamic of “increasing returns.” Reviewing recent literature in economics and suggesting extensions to the world of politics, the article demonstrates that increasing returns processes are likely to be prevalent, and that good analytical foundations exist for exploring their causes and consequences. The investigation of increasing returns can provide a more rigorous framework for developing some of the key claims of recent scholarship in historical institutionalism: Specific patterns of timing and sequence matter; a wide range of social outcomes may be possible; large consequences may result from relatively small or contingent events; particular courses of action, once introduced, can be almost impossible to reverse; and consequently, political development is punctuated by critical moments or junctures that shape the basic contours of social life.

Impure altruism and donations to public goods: a theory of warm-glow giving*

Abstract: When people make donations to privately provided public goods, such as charity, there may be many factors influencing their decision other than altruism. Social pressure, guilt, sympathy, or simply a desire for a "warm glow" may all be important. This paper considers such impure altruism formally and develops a wide set of implications. In particular, this paper discusses the invariance proposition of public goods, solves for the sufficient conditions for neutrality to hold, examines the optimal tax treatment of charitable giving, and calibrates the model based on econometric studies in order to consider policy experiments. Impure altruism is shown to be more consistent with observed patterns of giving than the conventional pure altruism approach, and to have policy implications that may differ widely from those of the conventional models. Copyright 1990 by Royal Economic Society.

A Treatise on the Family

Abstract: A Treatise on the Family. G. S. Becker. Cambridge, MA: Harvard University Press. 1981. Gary Becker is one of the most famous and influential economists of the second half of the 20th century, a fervent contributor to and expounder of the University of Chicago free-market philosophy, and winner of the 1992 Nobel Prize in economics. Although any book with the word "treatise" in its title is clearly intended to have an impact, one coming from someone as brilliant and controversial as Becker certainly had such a lofty goal. It has received many article-length reviews in several disciplines (Ben-Porath, 1982; Bergmann, 1995; Foster, 1993; Hannan, 1982), which is one measure of its scholarly importance, and yet its impact is, I think, less than it may have initially appeared, especially for scholars with substantive interests in the family. This book is, its title notwithstanding, more about economics and the economic approach to behavior than about the family. In the first sentence of the preface, Becker writes "In this book, I develop an economic or rational choice approach to the family." Lest anyone accuse him of focusing on traditional (i.e., material) economics topics, such as family income, poverty, and labor supply, he immediately emphasizes that those topics are not his focus. "My intent is more ambitious: to analyze marriage, births, divorce, division of labor in households, prestige, and other non-material behavior with the tools and framework developed for material behavior." Indeed, the book includes chapters on many of these issues. One chapter examines the principles of the efficient division of labor in households, three analyze marriage and divorce, three analyze various child-related issues (fertility and intergenerational mobility), and others focus on broader family issues, such as intrafamily resource allocation. His analysis is not, he believes, constrained by time or place. His intention is "to present a comprehensive analysis that is applicable, at least in part, to families in the past as well as the present, in primitive as well as modern societies, and in Eastern as well as Western cultures." His tone is profoundly conservative and utterly skeptical of any constructive role for government programs. There is a clear sense of how much better things were in the old days of a genderbased division of labor and low market-work rates for married women. Indeed, Becker is ready and able to show in Chapter 2 that such a state of affairs was efficient and induced not by market or societal discrimination (although he allows that it might exist) but by small underlying household productivity differences that arise primarily from what he refers to as "complementarities" between caring for young children while carrying another to term. Most family scholars would probably find that an unconvincingly simple explanation for a profound and complex phenomenon. What, then, is the salient contribution of Treatise on the Family? It is not literally the idea that economics could be applied to the nonmarket sector and to family life because Becker had already established that with considerable success and influence. At its core, microeconomics is simple, characterized by a belief in the importance of prices and markets, the role of self-interested or rational behavior, and, somewhat less centrally, the stability of preferences. It was Becker's singular and invaluable contribution to appreciate that the behaviors potentially amenable to the economic approach were not limited to phenomenon with explicit monetary prices and formal markets. Indeed, during the late 1950s and throughout the 1960s, he did undeniably important and pioneering work extending the domain of economics to such topics as labor market discrimination, fertility, crime, human capital, household production, and the allocation of time. Nor is Becker's contribution the detailed analyses themselves. Many of them are, frankly, odd, idiosyncratic, and off-putting. …