Quantifying Equilibrium Network Externalities in the Ach Banking Industry
46 Pages Posted: 30 Aug 2006 Last revised: 17 Aug 2022
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Quantifying Equilibrium Network Externalities in the Ach Banking Industry
Date Written: August 2006
Abstract
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.
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