Working Paper: NBER ID: w12488
Authors: Daniel A. Ackerberg; Gautam Gowrisankaran
Abstract: We seek to determine the causes and magnitudes of network externalities for the automated clearinghouse (ACH) electronic payments system. We construct an equilibrium model of customer and bank adoption of ACH. We structurally estimate the parameters of the model using an indirect inference procedure and panel data. The parameters are identified from exogenous variation in the adoption decisions of banks based outside the network and other factors. We find that most of the impediment to ACH adoption is from large customer fixed costs of adoption. Policies to provide moderate subsidies to customers and larger subsidies to banks for ACH adoption could increase welfare significantly.
Keywords: network externalities; ACH; bank adoption; subsidies; electronic payments
JEL Codes: L00; L13; L86; L88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| network externalities in the ACH banking industry (G21) | adoption decisions of banks (G21) |
| network externalities in the ACH banking industry (G21) | adoption decisions of customers (D16) |
| bank adoption (G21) | customer adoption decisions (D16) |
| fixed costs faced by customers (D49) | ACH adoption rates (Y10) |
| reduction of fixed costs (D21) | increase in adoption rates (J13) |
| marginal benefits from ACH transactions (D61) | encouragement of adoption (J13) |
| network externalities (D85) | transaction volumes (G15) |