The value of technology improvements in games with externalities: A fresh look at offsetting behavior(2015)
AbstractWe model the effect of safety technology improvements in a symmetric game in which each player's payoff depends on his own precaution and the other players average precaution. We derive conditions under which an improved technology increases or decreases players' equilibrium utility. For mandatory safety technologies, the direction of the welfare effect depends on whether the externality between players is positive or negative, and on whether the technology improvement is a complement or substitute for individual precaution. For safety technologies that individuals can choose whether or not to purchase, individuals expend too much on reducing the loss size but may spend either too much or too little on features that reduce the individual's loss probability.
Citation InformationMichael Hoy and Mattias K Polborn. "The value of technology improvements in games with externalities: A fresh look at offsetting behavior" (2015)
Available at: http://works.bepress.com/polborn/29/