David D. Reh School of Business
I am an assistant professor of economics and financial studies at Clarkson University. My research falls under the umbrellas of game theory, industrial organization, social dynamics, and the economics of culture and religion. I am particularly interested in the effects of heterogeneity on markets with consumption externalities, specifically: networks, platforms, public goods, and club goods.
I hold an M.A. in mathematical behavioral sciences from the Institute for Mathematical Behavioral Sciences at the University of California, Irvine and a Ph.D. in economics from the University of California, Irvine.
A wide range of public goods, such as open source software, possess two often-ignored features: (i) excludable and potentially rivalrous contribution benefits (e.g. status seeking) and (ii) nonexcludable and nonrival consumption costs (e.g. adoption costs). I develop a model of the voluntary provision of public goods that incorporates these features. I find that these additional features mitigate the well-known incentive problems, but introduce new ones. Costly consumption lessens the free-rider problem, leading to more efficient provision. Private benefits similarly reduce the free-rider problem, but can lead to over-provision via a negative congestion externality on the supply side. Status-seeking induces an increase in contributions to the benefit of each contributor but imposes a cost on all other consumers and contributors. Efforts to maximize welfare by a community leader or social planner often involve transferring surpluses from consumers to producers.
The religious club model is central to the economics of religion. To expand its scope for application, we develop the first model to combine (i) increasing returns to membership, (ii) discrimination, and (iii) religious competition. Any degree of non-rivalry in religious club goods introduces scale effects which require new analytical techniques. Due to increasing returns, a religious leader faces a trade-off between forming a large inclusive club and screening out less committed types to form a small strict club. Endogenous screening makes religious strictness a non-monotonic function of economic development, which is consistent with the emergence of strict sects following periods of liberalization and economic growth. Blanket discrimination against all community members makes the religious community stricter and more cohesive, explaining the survival of religious sects and minorities under persecution. Stigmatizing actively religious members promotes social integration on the whole, but can create an extreme isolationist sect. Contrary to prior work on religious markets, we uncover a mechanism by which religious competition reduces religious participation and boosts social integration. Thus, attempts to moderate religion by stigmatizing participation and restricting competition could backfire. Finally, our model provides guidance for empirical work on religious discrimination and further extensions of the religious club model.
(2018) "Going Along or Going Independent? A Dynamic Analysis of Nonprofit Alliances," with Jiawei Chen, B.E. Journal of Economic Analysis and Policy, 18(2). [working paper version]
This paper investigates strategic alliances in the nonprofit sector in the form of franchising. Using a dynamic model of local public goods with endogenous affiliation and splitting, we show that local organizations may choose to affiliate with the national organization for faster capital accumulation. Temporary alliance occurs when a local organization strategically affiliates with the national organization only to break away after accumulating enough capital. Alliance is more likely to arise and persist when the local chapter is smaller, when the local chapter’s mission is closer to the national organization’s, when the national organization is more efficient in production, and when the local chapter is more patient. Moreover, regulation that requires the local chapter to be affiliated with the national organization would be welfare reducing when the local chapter is large, when the local and national missions differ substantially, and when production at the national organization is inefficient.
(2017) "Education, Identity, and Community: Lessons from Jewish Emancipation," with Jean-Paul Carvalho and Mark Koyama, Public Choice, 171(1) pp. 119-143. [working paper version]
Why do some minority communities take up opportunities for education while others reject them? To shed light on this, we study the impact of Jewish Emancipation in nineteenth century Europe on patterns of education. In Germany, non-religious and Reform Jews dramatically increased their rates of education. In the less developed parts of Eastern Europe, Orthodox and ultra-Orthodox communities imposed unprecedented restrictions on secular education and isolated themselves from society. Explaining this bifurcation requires a model of education that is different from the standard human capital approach. In our model, education not only confers economic benefits but also transmits values that undermine the cultural identity of minority groups. We show that it is individually rational for agents who benefit least from rising returns to education to respond by reducing their investment in education. Group-level sanctions for high levels of education piggyback upon this effect and amplify it.
(2015) "Competition Between Open Source and Proprietary Software: Strategies for Survival," Journal of Management Information Systems, 32(3) pp. 268-295. [working paper version]
There are two puzzles in the software competition literature: whether both proprietary and open source software will survive and how producers of proprietary software differentiate themselves from open source competition. I address both puzzles by analyzing competition between a firm producing proprietary software and a community producing open source software. If the firm faces no competition, then the software caters to less technologically savvy individuals. When facing competition, the open source software caters to the most technologically savvy individuals, leading the firm to target even less savvy individuals than it would when acting as a monopolist in order to differentiate its software from the open source option. The open source movement, then, may not be an unalloyed success as the growth in open source can be tied to deterioration in the proprietary software. Given that both types of software survive by catering to different segments of the market, an important avenue for research will be to analyze the stability of the underlying segments and the corresponding welfare implications.
We examine the conditions under which an identity group (e.g. religion, race, social class) can be radicalized over time by a forward-looking organization. A dynamic radicalization strategy is identified in which the organization screens out moderate types and forms a club consisting only of extreme types. This extreme subgroup then radicalizes the entire group by shaping preferences and raising discrimination against group members. While this screening process makes the organization appear weak, it puts the organization on a growth path along which it becomes stronger, larger, and more radical over time. Our model shows how existing counter-radicalization policies, including stigmatizing participation in extreme groups, can backfire and increase radicalization. The radicalization strategy we identify can be disabled by competition among identity-based organizations and informational interventions that eliminate stereotypes.
Reimbursing Consumers' Switching Costs in Network Industries (NET Institute Working Paper #16-13, with Jiawei Chen, under review).
Prior literature finds that switching costs incentivize firms to harvest their locked-in consumers rather than pricing aggressively for market dominance, resulting in a lower market concentration. Using a dynamic duopoly model of network industries, we show this result is overturned if firms have the option to reimburse consumers' switching costs. The larger firm reimburses a larger proportion of switching costs than the smaller firm does, leading to a bigger market share for the larger firm. Correspondingly, switching costs heighten market concentration. Firms' option to reimburse increases consumer surplus and total surplus, and increases producer surplus when network effects are strong.
Composition Effects in Platforms with Population Heterogeneity (new draft coming soon).
I develop a duopoly model of competition between platforms, incorporating users with heterogeneous preferences over both the platforms' characteristics and the presence of other users. Hence platforms are concerned with both the number and composition of users. The model yields novel representations of heterogeneity, size effects, and composition effects. I use these representations to decompose the relationship between the price and the size and composition of a platform. Prices need not be monotonic in the size of the installed base and profitability can similarly vary inversely. I identify conditions under which prices are increasing, decreasing, or unchanging in platform size. Given that users care about composition, nonpricing strategies to cultivate platform composition emerge when platforms cannot sufficiently leverage price discrimination. Composition effects and cultivation reframe the dominant-firm fringe-firm paradigm and explain the presence of multiproduct firms in platform markets, such as online dating.
msacks (at) clarkson (dot) edu