Quantifying Equilibrium Network Externalities in the ACH Banking Industry
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.
We acknowledge funding from the NET Institute and the National Science Foundation (Grant SES-0318170), and thank the Editor, two anonymous referees, Steve Berry, Liran Einav, Jinyong Hahn, Fumiko Hayashi, Brian McManus, Andrea Moro, Joanna Stavins, Klaas van't Veld, Bill Vogt and seminar participants at numerous institutions for helpful comments and Anita Todd for editorial assistance.
Daniel Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 738-761, Autumn. citation courtesy of