Measuring Nash Equilibrium Consumption Externalities

We estimate Nash equilibrium consumption externalities in household petrol budget shares. The reaction curves are obtained from an AIDS with petrol consumption externality. Using a continuous set of ten year cross sections from FES (1991-2000), we analyse the externality generated by households living in Newcastle area (UK). In each year, income decile cohorts are created. Panel techniques are used after pooling cross section estimates have been discussed. Using non nested procedures, two restricted models are compared: the cohort specific externality effect and the single popular case. The single popular is the model accepted by the data.Household Economics; Nath Equilibirum; Externalities; Cross-Sectional Models; Models with Panel Data hazard; non-responsiveness; resource allocation

Comparative Statics with Consumption Externalities

We consider the comparative statics of consumer demand when there are consumption externalities in one commodity between two individuals. We show that the externality can switch goods which would naturally be normal into inferior goods and as a result th e externality can also lead to Giffen goods. In addition the externality can transform complementarity relations between goods. Thus substitutes can become complements or vice versa once the feedback effects of the externality are taken into account. Next we consider the effect of externalities on Slutsky symmetry and negativity restrictions With consumption externalities there are generalised forms of such restrictions. We derive these both for the two individual case and for cases in which either there are two individuals but all goods may cause externalities or there is a single externality good but H individuals. We relate the generalised symmetry restrictions to the rank conditions of Browning and Chiappori. Finally we consider the effects of consumption externalities on consumer surplus analysis.