From: Robin Hanson (hanson@econ.berkeley.edu)
Date: Mon Mar 15 1999 - 15:04:16 MST
T.0. Morrow wrote:
>A week or so ago, Robin Hanson objected to the label "network effects" on
>grounds that "externalities" fits better, that economists should stick
>standard terminology, and that "effects" is so loose as to mean nothing.
>... Robin's argument left me unconvinced because I think that it courts
>confusion to call call mere *pecuniary* externalities caused by network
>effects by a term normally reserved for *non-pecuniary* externalities. ...
>Joseph Farrell's ... explained to me that economists decided in the 1920s
>that "externalities" ought not apply to mere pecuniary effects. He added
>that, while he thinks that network effects sometimes lead to conventional
>externalities, they often do not. Hence his preference for "network effects."
Farrell is an advisor of mine here, and I respect his opinion, so on that
ground I should defer. On the grounds of the argument you've described,
however, I retain my previous objection. I think those 20s economists
were playing word games that ultimately lead to more confusion than it
avoided. It seems to me natural to say that a "pecuniary externality" is
in fact an externality. Those who assume that any externality must be
non-pecuniary, or that any pecuniary externality is harmless, are assuming
too much.
Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar FAX: 510-643-8614
140 Warren Hall, UC Berkeley, CA 94720-7360 510-643-1884
after 8/99: Assist. Prof. Economics, George Mason Univ.
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