Negative Externalities Research Articles

Can Competition Increase Profits in Factor Investing?

The increasing number of institutions exploiting factor-investing strategies raises concerns that competition may erode profits. We use a game-theoretic model to show that, whereas competition among investors exploiting a particular factor erodes profits because of the negative externality of their price impact on each other, competition to exploit other factors can increase profits from the first factor because of the positive externality from trading diversification (netting of trades across factors). Using data for 18 factors as well as mutual fund holdings, we show that competition and trading diversification substantially affect the profits from factor investing. This paper was accepted by Agostino Capponi, finance. Funding: The authors received an INQUIRE-Europe research grant for this project. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02684 .

The impact of all-inclusive offerings in a tourism destination’s competitiveness

This study analyzes the impact of all-inclusive offerings on a destination's competitiveness. When the rise in all-inclusive offerings causes a negative externality on complementary services, it creates a market-size effect. This results in an excessive supply of all-inclusive offerings in the market. Imposing different taxes on all-inclusive and non-all-inclusive offerings is more effective than a cap on the supply of all-inclusive offerings. Taxes can implement the optimal allocation. We expect the market-size effect to be harmful to competitiveness in mature destinations.

Understanding the Transformations of San Lorenzo, Rome: An Attempt at Conceptual Order between Gentrification and Urban Policy

This paper is the result of a preliminary research phase aimed at identifying the phenomenon of gentrification in Rome’s San Lorenzo neighborhood, examining the perception of the phenomenon and the urban planning tools that have been adopted until today to contain it. The experimental framework proposed, based on qualitative research methods, aims to discuss if some urban transformations can be related only to market phenomenon inherent to gentrification or to the lack of planning tools able to manage—through the construction of a shared view on neighborhoods development—the negative externalities resulting from the real estate investments induced by the tourism sector and linked to the presence of universities in the reference territory. The research combines an international theoretical framework; the analysis of the policies and of the urban transformation during the contemporary history of the neighborhood; and interviews to key informants such as representatives of local institutions and associations, researchers, inhabitants, and others. The research approach intends to deepen the general perception and the comprehension of the phenomenon of gentrification from the local community, in relation to his own involvement in decision-making processes about the strategic regulatory–prescriptive development of the neighborhood. The primary objective of the paper is to advocate for an analytical framework that facilitates a better understanding of gentrification within the national context and explores potential institutional responses. It seeks to clarify the concept of gentrification, which is often misunderstood when interpreted solely through its Anglo-Saxon definition. By doing so, the paper aims to contribute to informed discussions and effective policy-making regarding urban development in San Lorenzo and beyond.

The extent of overtourism in some European locations using multi-criteria decision-making methods between 2014 and 2023

Purpose Overtourism has been identified as a significant global problem with numbers of negative externalities. The purpose of this paper is to contribute to the establishment of a standard that objectively measures the extent of tourism to produce a dynamic ranking of selected European settlements, as there is a lack of studies using sophisticated statistical methods to analyse secondary data on overtourism. Design/methodology/approach The 28 selected sites, studied according to their involvement in overtourism, were ranked using multi-criteria decision-Mmaking Methods between 2014 and 2023. Rankings were calculated by VIKOR, TOPSIS and MMOORA, and an aggregate ranking was created by using the cross-entropy optimization. Additionally, the annual changes in the rankings were presented graphically using principal component analysis on a two-dimensional space, referred to as the “sites' space.” Finally, the sites were clustered into three distinct groups based on their level of overtourism: less, medium and more. This was achieved through the use of the K-means algorithm. Findings Following the onset of the pandemic in 2020, there was a notable decline in overtourism. However, following the year 2021, the numbers began to rise once more, and by 2022, they had returned to their pre-pandemic levels. Among the methods, MMOORA demonstrated the most effective performance in comparison to the optimal ranking. Originality/value The applied methods with novel rank aggregation could also shed light on the most relevant indicators to overtourism. These included the number of nights spent in paid accommodation per population, the number of overnight visits per population and the number of air passengers.

Negative Externalities of Regulation: Identity‐relevant Information in Mandatory Short‐selling Disclosures

Since November 2012, short sellers have been required to disclose all their significant short positions against European firms. While this regulation was primarily implemented to have implications for financial markets, I explore its negative externalities on shorted firms. Using mandatory disclosures of short positions between 2013 and 2019, I find that short‐selling notifications and the number of short sellers with an open short position are positively associated with shorted firms’ dividend policies. Notably, the association is more pronounced for upward and initial notifications compared to downward and follow‐up notifications. These results are robust to several matching methods and a battery of robustness tests. Additional results reveal that shorted firms might increase their dividends because short‐selling disclosures reveal the identity of active and large short sellers, highlighting the importance of short sellers’ heterogeneity. I also show that shorted firms increase their dividends temporarily and do not react homogenously, as they engage in a cost–benefit analysis to decide whether to use their dividend policy. Overall, I document the real effects on shorted firms of an alternative form of short selling, bridging the gap between passive and activist short selling. I conclude that mandatory short‐selling disclosure regimes carry negative externalities for firms due to the provision of short sellers’ identity‐relevant information.

Export policy cooperation in a pandemic: the good, the bad and the hopeful

AbstractWe develop a model in which vaccine‐producing firms from different developed countries supply vaccines to the developing world during a pandemic. Exporting countries experience a negative externality from incomplete global vaccination, which they try to mitigate by exporting vaccines to developing countries. A cooperative export policy is compared to the alternative regimes of non‐cooperation and non‐intervention. When the negative externality is low, cooperation among exporting countries is worse for global welfare than non‐intervention. However, at high externality levels, export policy cooperation is globally superior to non‐cooperative export subsidization. It then even has the potential to maximize global welfare.

Assessing the role of stakeholders in sustainable groundwater resources management using power-interest matrix (PIM): in Hamedan-Bahar plain, Iran

IntroductionMoral Intelligence (MI) as a concept has gained importance Increasing water scarcity as a result of climate change and its coincidence with population growth, economic development, and the resulting rising demand has become an important challenge in most parts of the world. In numerous nations, such as Iran, frequent occurrences of droughts, combined with the extensive utilization of surface and groundwater resources, have resulted in numerous environmental detriments, including a decrease in groundwater levels, land subsidence, deterioration of water quality, and, more recently, the emergence of dust storms due to soil erosion and desertification. In this situation, stakeholders can play an efficient role in water management and the alleviation of water scarcity and its negative environmental externalities in the context of good water governance.MethodThis investigation endeavored to examine the functions and importance of individuals or groups with a vested interest in groundwater resources within the Hamedan-Bahar Plain. Additionally, it aimed to evaluate their influence and motivations through the utilization of the power-interest matrix (PIM) and important-performance matrix techniques. A total of 86 people were identified who could and were allowed to be interviewed through the snowball method. Then a 10-point scale questionnaire was used to rate the questions. To examine the power and interest of the stakeholders, the IPM test was carried out using the smart pls.3 software, and the results were classified based on the average values and the overall impact. The results reveal that 20 institutions and agencies have an effective role in the governance of groundwater resources in the Hamedan-Bahar plain. Furthermore, the analysis of the PIM revealed that the most powerful organizations that play the most important role in the management of the groundwater resources of the studied area are the regional water organization, the representatives of the parliament, and the governor, respectively.Results and discussionBased on the research findings, the governance “power” index of organizations and institutions with power (39.77%) and total impact (0.516) is higher and more effective than the value of benefits with power (36.13%) and total impact (0.48). Accordingly, paying attention to the role and influence of the power of stakeholders will be an important and effective point in the plans and strategies for groundwater resources in the Hamadan-Bahar plain. In the end, strategies are suggested to each stakeholder for better implementation of the programs and strategies.

Reinforcement Learning for Transit Signal Priority with Priority Factor

Public transportation has been identified as a viable solution to mitigate traffic congestion. Transit signal priority (TSP) control, which is widely used at signalized intersections, has been recognized as a practical strategy to improve the efficiency and reliability of bus operations. However, traditional TSP control may fall short of efficiency and is facing several challenges of negative externalities for non-transit users and the need to handle conflicting priority requests. Recent studies have proposed the use of reinforcement learning (RL) methods to identify efficient traffic signal control (TSC). Some of these studies on RL-based TSC have incorporated the concept of max-pressure (MP), which is a maximal weight-matching algorithm to minimize queue sizes. Nevertheless, the existing RL-based TSC methods focus on private vehicles and cannot adequately distinguish between buses and private vehicles. In prior research, RL-based control has been implemented within the context of bus rapid transit (BRT) systems. This study proposes a novel RL-based TSC strategy that leverages the MP concept and extends it to incorporate TSP control. This is the first implementation of RL-based TSP control within the mixed-traffic road network. A significant innovation of this research is the introduction of the priority factor (PF), which is designed to prioritize bus movements at signalized intersections. The proposed RL-based TSP with PF control seeks to balance the competing objectives of enhancing bus operations while mitigating adverse impacts on non-transit users. To evaluate the performance of the proposed TSP method with the PF mechanism, simulations were conducted on an arterial and a grid network under dynamic traffic conditions. The simulation results demonstrated that the proposed TSP with PF not only reduces bus travel times and resolves conflicts between priority requests but also does not make a significant negative impact on passenger car operations. Furthermore, the PF can be dynamically assigned according to the number of passengers on each bus, suggesting the potential for the proposed approach to be applied in various traffic management scenarios.

Improving knowledge of the acoustic factors involved in railway noise annoyance: first results of a pilot field survey of sixty-two local residents

Railway transportation contributes to the objectives of decarbonization but also generates negative externalities, including noise. Energy noise indicators used to characterize population exposure do not adequately reflect the repetitive nature of railway noise peaks. The GENIFER pilot study aims to test a protocol designed to characterize railway noise events according to the instantaneous perceived annoyance when the train is passing, in order to improve understanding of the influence of acoustic factors on annoyance. The first phase of the survey was carried out in 2023 among 62 residents of a pilot site. An electronic device was used to collect around 5,000 ratings, ranging from 1 to 10, assessing the instantaneous annoyance induced by train noise at passing trains. The site instrumentation included sixteen sound level meters and two video recording systems, enabling annoyance ratings to be associated with the acoustic characteristics of railway noise events. A questionnaire aimed at identifying co-determinants of long-term annoyance was also administered to participants. Feedback on the field implementation of this survey and initial results concerning acoustic measurements, instantaneous annoyance ratings and questionnaire responses will be presented.

Analysis Best Practice Policy Road Pricing to Overcome Negative Externalities of Motorized Vehicles in West Java

This research analyzes best practice policy road pricing in overcoming the negative externalities caused by motorized vehicles in West Java. Negative externalities, such as traffic congestion and air pollution, are major challenges for urban areas in West Java. Through implementation policy studies on road pricing in Singapore and London, this research analyzes the effectiveness of these policies in reducing congestion and improving air quality. The research methods used include literature reviews, policy analysis, and in-depth interviews. The research results show that road pricing can be an effective tool in reducing congestion and air pollution, if there is collaboration with the transportation department, police, and raharja services, adequate technology, effective outreach, and integration with improved public transportation. This policy must be designed holistically by taking into account related opportunities and issues. The role of communication, transparency and an inclusive approach is very important in increasing public acceptance of this policy.

Farmers’ limited perceptions of the role of ecological processes in crop production, a potential obstacle to agroecological transition

Industrialized agriculture has strong impacts on ecosystem functioning. However, despite public policies, incentives and scientific warnings, intensive agriculture remains the main model. Agroecology, as a way to produce food while relying on ecological processes and reducing negative externalities, is considered as a sustainable alternative. The literature on agroecological transitions increasingly focuses on the perceptions that farmers have of ecological processes, supposing that the more farmers perceive the interests of ecological processes for production, the more they will implement sustainable farming practices. In this research, we tested the hypothesis that an obstacle to an agroecological transition is that farmers have little awareness of the reliance of food production on the natural functions of ecosystems. We thus address three issues in this article: first, the weight farmers gave to ecological processes in farming production itself; second, the roles of on-farm experiments (OFEs) or agri-environmental schemes (AESs) as drivers of this perception of ecological processes; and third, the links between the perception of ecological processes and the definitions of agroecology given by farmers. We interviewed 78 farmers representative of an intensive cereal plain in western France about what they perceive as drivers of crop production and of soil fertility and the links they perceived between hedges and crop production. Our results show that farmers perceive climate, inputs and technical aspects of crop production as more important drivers of crop yields than ecological processes. By contrast in non-productive areas of the farm, the perception of the importance of ecological processes was greater for questions relating to hedges. A redundancy analysis (RDA) showed that AESs rather than OFEs positively affected farmers' perceptions of ecological processes in sustaining farming. Nevertheless, despite the fact that half of the farmers related agroecology to benefits in ecosystem functioning, they had limited perceptions of the positive role of ecological processes in sustaining farming. Our study therefore supports our hypothesis that limited perceptions of the role of ecosystem functions in farming could be an obstacle to an agroecological transition, as agroecology and ecological processes are seen as beneficial for ecosystems but not for farming production. Our study also suggests that open-ended and indirect questions rather than direct methodologies can bring new insights to our understanding of farmers’ perceptions.

Does the environmental impact of banks affect their financial performance?

AbstractWe empirically study the environmental impact of banks, i.e., the negative externality on the environment and society deriving from the use of a natural resource or the emission of a pollutant. We find that environmental “impact ratios”, that is, environmental damage costs in proportion to total revenues are negatively correlated with bank profitability. Furthermore, banks with a stronger impact on the environment are valued less by equity market investors and pay less cash to shareholders. Among environmental categories, potential damage from greenhouse gas emissions or waste seems to be especially severe. We provide important insights for banks’ environmental management. If bankers can address businesses and practices to be more renewable and lower in their emissions, they could improve both the operating and the market performance. Thus, firms would be financially more stable and could react smoothly to the recent introduction of stricter and onerous environmental regulations.

Debunking the One-size-fits-all Approach: Synergistic and Trade-off Effects of Collective Action on Household Food Security Among the Smallholder Farmers in Central Kenya

Collective action is important in ameliorating the negative externalities in agriculture to promote household food security (HFS). This study explored the effects of efficiency and livelihood collective action initiatives (CAIs) on HFS along the pathways of production and income. The efficiency CAIs pursue efficiency-enhancing collective activities including input sourcing and output marketing. The livelihood CAIs engage in household livelihood and resilience enhancing collective activities such as provision of credit and informal insurance, pooling savings and acquisition of assets. A multinomial endogenous treatment effects (METE) model and an ordered probit model were employed on cross-sectional data drawn from 532 households from Murang’a County in central Kenya. The results revealed significant differences in HFS between the efficiency and livelihood CAIs. The differences were accounted for by the variations in household and organizational characteristics that determine the capacity to leverage HFS benefits along the pathways of production and income. Both efficiency and livelihood CAIs showed a positive significant effect on HFS through production. The results further showed that income positively influenced HFS among the livelihood members contrary to efficiency CAIs that showed negative HFS effects. The HFS across the combined pathways of income and production was lower for the efficiency CAIs than the livelihood CAIs. This was mainly due to the trade-off income effects exhibited by the former and the synergies accrued from income and production on the latter. The findings suggest that the overall performance of both efficiency and livelihood CAIs in leveraging HFS from joint income and production remains tentative. Therefore, a one-size-fits-all collective action promotional policy and program design approaches for improved HFS outcomes are inadequate. The study suggests a portfolio of context-specific collective action policies and interventions that match the differences between the efficiency and livelihood CAIs and their links to HFS. The policies would confer potential synergies, spillover effects and complementarities in strengthening the synergies while mitigating the trade-offs along the income and production pathways between the efficiency and livelihood CAIs. There is a need to enhance access to information, extension and advisory services and ICT among the members of the livelihood CAIs to improve production. It is important to incentivize the non-farm livelihood-enhancing economic activities among the livelihood members to fill the household food gaps arising from low production. It is also important to establish collective action funds and micro-credit schemes with affordable interest rates. This would help to tap the opportunities for credit sourcing and pooling savings among the livelihood members while promoting collective input sourcing and output marketing among the efficiency CAIs.

Authoritarian cue effect of state repression

AbstractState repression in autocracies has long been assumed to elicit explicit or implicit disapproval from citizens. Recent studies suggest that authoritarian governments can garner support for repressive policies through active information manipulation or exploiting social cleavages. However, is it possible for citizens to support repression even without government manipulation? We propose the “authoritarian cue effect,” arguing that citizens’ attitudes toward state repression can be endogenously shaped by instances of state repression, which may be interpreted as cueing messages signaling the regime's disapproval of the punished behaviors. Using a novel belief correction survey experiment, we empirically demonstrate that state repression can induce the public to pick up on cues and automatically adopt the state's stance, perceiving repressed behavior as having more negative externalities and supporting state repression more. This cue effect suggests that authoritarian state repression can self‐legitimize and evade public opinion backlash in a less costly manner than previously presumed.

Socially Responsible Finance: How to Optimize Impact

Abstract Can a socially responsible fund (SRF) improve social welfare while maximizing assets under management? We consider a two-sector model integrating financial intermediation, emissions’ negative externalities, and investors’ social preferences with regard to value alignment and impact. In scenarios with a high proportion of value-aligned investors, the SRF invests in clean sectors and compels recipients companies to use low-emission suppliers from the polluting sector, which appeals to both investor types. Alternatively, the SRF adopts a dual-fund approach, with one fund targeting clean sectors for value-aligned investors and another focusing on reducing direct emissions in polluting sectors to attract impact investors. (JEL:G11, G23, M14, O44, Q51)

A review of policy levers to reduce meat production and consumption

It is increasingly apparent that we require a substantial reduction in animal production and consumption for the sake of the environment and public health. In this paper, we conducted a systematic review to explore the policy levers available for governments to reduce animal farming and the consumption of meat. The policy levers generated by the review are categorised by four main types of interventions: Financial measures, Command- and-control, Informational, and Behavioural. First, we explore four financial measures: taxes on meat is the most-studied intervention, and the least publicly accepted in polling, sometimes being implemented indirectly via measures such as carbon taxes or rescinding VAT exemptions; subsidies for animal product alternatives are considered as a more publicly acceptable alternative approach, and would reduce long-term demand for meat by making alternatives more competitive; agricultural carbon trading schemes are discussed, and may represent a politically feasible way to hold livestock producers accountable for negative externalities; and buyouts of animal farms can be an impactful way to compensate producers to leave the industry, but must be done with care to avoid unintended social and market consequences. Second, we explore two command-and-control measures: regulating animal production with standards such as animal welfare requirements and health and safety rights for agricultural workers is amongst the most well-supported policies, and is an impactful way to ensure minimum standards of production are met; however, restrictions on animal consumption, such as meat–free days in public catering, are less publicly accepted. Third, we discuss three informational measures: food product labels, such as animal welfare or environmental impact labels, fulfil consumers’ expectations to have this information, and although there is limited evidence that they impact consumer behaviour directly, such labels may nonetheless incentivise producers to competitively improve; likewise, national dietary guidelines appear to have little direct impact on food choices, but can impact other institutions such as schools and medical institutions; policies on information campaigns can help or hurt meat reduction efforts, with some jurisdictions prohibiting meat advertisements, while others spend millions on campaigns to promote meat consumption. Fourth, we explore a range of behavioural measures which could be implemented in public catering settings and/or incentivised in food service, including presentation and positioning of meat- and plant-based dishes, and altering the food options on offer – we find that adding more high-quality plant-based options to menus and presenting these options as the default wherever the format allows are highly impactful and tractable behavioural policies that could reduce meat consumption. Informational and behavioural measures can complement traditional fiscal and command-and-control measures to reduce animal production and consumption. We discuss the implications for researchers and policymakers.

Disentangling greed and self-interest

Greed combines dissatisfaction with one’s current state of affairs with an unsatisfiable desire for more. It motivates people to acquire more and has many societal implications. Various scholars have argued that greed is associated with, or even equated to the motive of self-interest. And hence, they have also argued that greed is associated negatively with other-interest (some definitions even suggest that greed produces negative externalities and harm-to-others). To date, however, these ideas have not been scrutinized empirically. In this article we report three survey studies (N1 = 145, N2 = 302, and N3 = 346) that adopted an individual differences perspective to investigate how dispositional greed, self-interest, and other-interest are related to each other. The results from correlational analyses and confirmatory factor analyses indicate that greed is distinct from self-interest, and from other-interest. The results also reveal that greed and self-interest are differentially related to various distinct behavioral inclinations. The current findings corroborate recent research on greed and adds to the understanding of this motivational construct and the potential harm it can inflict on others.

Platform advantages or "policy trap" for neighbors? Export effects of establishing free trade zone in China: A quasi-natural experiment

As the important regional policy arrangements for China to implement a new round of opening-up strategy, the free trade zone (FTZ) policy have significant impacts on export trade. Based on the quasi-natural experiment of China's establishment of FTZs, the article evaluates the impact of the FTZs on enterprises' exports by using export data from Chinese Customs database and statistics of prefecture-level cities in China from 2007 to 2018. The analyses found that the FTZs has significantly promoted local exports. The FTZs has negative spatial externalities on export activities, which reduces the export performance of neighboring cities. The export effects of FTZs present continuous and dynamic characteristics. There is heterogeneity in the marginal impact of FTZs in different locations on the exports of enterprise. These findings provide empirical evidence for a more comprehensive understanding of the impact of the establishment of FTZs on enterprises' exports in the spatial dimension.

The fourth industrial revolution and the future of work: Reasons to worry and policies to consider

AbstractA striking feature of the contemporary U.S. economy is the widespread adoption of technologies associated with the 4th Industrial Revolution (IR) including sensors, industrial robotics, artificial intelligence, and machine learning. Empirical work investigating the labor market impacts of 4th IR technological advances reveals they are skill‐biased, primarily advancing job opportunities for those with high levels of formal of education, unlike prior industrial revolutions that were skill neutral. This paper explains how the 4th IR has fostered job polarization, greater technological unemployment, and increasing wage inequality. Moreover, we delineate why these developments are worrisome and likely to expand over time. We assert that policy intervention to promote reinstatement of technologically unemployed persons is warranted, because displacement of labor caused by automation creates negative externalities. Consequently, we provide an example of how tax policies could be used to curtail technological unemployment—without creating hurdles for the adoption of 4th IR innovations. We advance and describe a new, innovative way, for fiscal policy to foster employment opportunities for those at greatest risk of job loss through automation. The initiative entails government subsidies to promote the provision and acquisition of skill certificates that employers view as complementary with 4th Industrial Revolution Technologies.

Design and sustainability in the fashion industry: The example of independent labels in London

The fashion industry is deemed to be notoriously unsustainable. Fashion brands and their multiple stakeholders recognize both environmental and social negative externalities that the industry generates. Fashion capitals like London accommodate innovative fashion businesses, which are expected to be sustainability pioneers. This paper evaluates which sustainability practices fashion brands in London accommodate and whether those with profound investments in sustainability achieve superior attractiveness to the customer. The research is based on data collected for 158 fashion brands. The database includes evaluations of environmental and social sustainability provided by the ‘Good on You’ platform and such characteristics as brands' affiliation with high-end design and the number of followers on Instagram as an indicator of their attractiveness to the customer. Analysis of data led to the typology of brands in London. Findings indicate that only one-third of researched businesses seriously place sustainability at the center of their business models. Even these attempts have not led to drastic changes in London's fashion industry outlook. Most successful in terms of sustainability firms are not associated with 'high-end' fashion. Customer appreciation is only sometimes on the side of sustainable firms. Policymakers and practitioners can use the results as a guide for a more critical appraisal of developments in sustainable fashion.