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Quantifying Equilibrium Network Externalities in the ACH Banking Industry

Author

Listed:
  • Daniel Ackerberg
  • Gautam Gowrisankaran
Abstract
We seek to determine the causes and magnitudes of network externalities for the automated clearing house (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.

Suggested Citation

  • 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.
    • Handle: RePEc:rje:randje:v:37:y:2006:3:p:738-761
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