nep-net New Economics Papers
on Network Economics
Issue of 2005‒06‒14
fourteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Entry, Cost Reduction and Competition in The Portuguese Mobile Telephone Industry By Gagnepain, Philippe; Pereira, Pedro
  2. Alliances in the Air: Some Worldwide Evidence By Gagnepain, Philippe; Marín Uribe, Pedro L
  3. Equilibria in a Dynamic Global Game: The Role of Cohort Effects By Heidhues, Paul; Melissas, Nicolas
  4. Information Exchange and Competition in Communications Networks By Cambini, Carlo; Valletti, Tommaso
  5. Strategic analysis in complex networks with local externalities By Galeotti, Andrea; Vega-Redondo, Fernando
  6. Consumers networks and search equilibria By Galeotti, Andrea
  7. History versus Geography: The Role of College Interaction in Portfolio Choice and Stock Market Prices By Massa, Massimo; Simonov, Andrei
  8. City Structure, Job Search and Labour Discrimination. Theory and Policy Implications By Selod, Harris; Zenou, Yves
  9. Information Channels in Labour Markets. On the Resilience of Referral Hiring By Casella, Alessandra; Hanaki, Nobuyuki
  10. Formation of Social Capital in Central and Eastern Europe: Understanding the Gap Vis-a-Vis Developed Countries By Fidrmuc, Jan; Gerxhani, Klarita
  11. Networks of Relations and Social Capital By Lippert, Steffen; Spagnolo, Giancarlo
  12. Culture: An Empirical Investigation of Beliefs, Work and Fertility By Fernández, Raquel; Fogli, Alessandra
  13. The Power of Networks: Integration and Financial Cooperative Performance By Martin Desrochers; Klaus P. Fischer
  14. On the morphological structure of a network By Vanhoucke, Mario; Coelho, José; Debels, Dieter; Tavares, Luis V.

  1. By: Gagnepain, Philippe; Pereira, Pedro
    Abstract: We study the effect of entry on costs and competition in the Portuguese mobile telephony industry. We construct and estimate a model that includes demand, network, and cost equations. The latter accounts for inefficiency and cost reducing effort. We show that failure to account for cost reducing effort leads to biased estimates of competition in the industry. We also find that our estimated price-cost margins are similar to hypothetical Nash margins, if firms are patient, and have optimistic beliefs about the industry growth. Finally, our results suggest that the entry of a third operator in 1998 led to significant cost reductions, and fostered competition.
    Keywords: competition; efficiency; empirical analysis; entry; mobile telephony
    JEL: L13 L43 L93
    Date: 2005–04
  2. By: Gagnepain, Philippe; Marín Uribe, Pedro L
    Abstract: We consider an empirical model of worldwide airlines’ alliances that we apply to a large set of companies for the period 1995-2000, with special attention to US and EU carriers. From the estimation of a cost, capacity and demand system that accounts for cross-price elasticities, we attempt to shed light on several interesting issues: First, we analyse whether alliance members’ networks are complements or substitutes. Second, we construct price-cost margins and test several hypothesis of non-cooperative behaviour such as individual Nash and joint price setting within the alliance. We suggest that current alliances' pricing habits are not uniform and range from individual Nash to more competitive behaviours.
    Keywords: airline; alliances; cross-price elasticities; Nash behaviour
    JEL: L11 L13 L41 L93
    Date: 2005–05
  3. By: Heidhues, Paul; Melissas, Nicolas
    Abstract: We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects and discuss when they arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, the dynamic game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, there exist parameter values for which multiple equilibria arise because players have a strong incentive to invest at the same point in time others do.
    Keywords: coordination; equilibrium selection; global game; period-speciifc network effects; strategic complementarities; strategic waiting
    JEL: C72 C73 D82 D83
    Date: 2005–04
  4. By: Cambini, Carlo; Valletti, Tommaso
    Abstract: We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete for such users by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off-net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also show that a ‘bill-and-keep’ system over access charges can approximate an efficient regime and we discuss when this system emerges from private negotiations.
    Keywords: access charges; bill-and-keep; information exchange; interconnection; reception charges
    JEL: L41 L96
    Date: 2005–05
  5. By: Galeotti, Andrea; Vega-Redondo, Fernando
    Abstract: In this paper, we discuss a model with local positive externalities on a complex random network that allows for wide heterogeneities among the agents. The situation can be analyzed as a game of incomplete information where each player's connectivity is her type. We focus on three paradigmatic cases in which the overall degree distribution is Poisson, exponential, and scale-free (given by a power law). For each of them, we characterize the equilibria and obtain interesting insights on the interplay between network topology and payoffs. For example, we reach the somewhat paradoxical conclusion that a broad degree distribution or/and too low a cost of effort render it difficult, if not impossible, to sustain an (efficient) high-effort configuration at equilibrium.
    Keywords: Complex networks, local externalities
    Date: 2005–06
  6. By: Galeotti, Andrea
    Abstract: We explore the effect of local information sharing among consumers on market functioning. Consumers are embedded in a consumers network, they may costly search non-sequentially for price quotations and the information gather are non-excludable along direct links. We first show that when search costs are low consumers randomize between searching for one price and two price quotations (high search intensity equilibrium). Otherwise, consumers randomize between searching for one price and not searching at all (low search intensity equilibrium). In both equilibria consumers search less frequently in denser networks. The main result of the paper show that when search costs are low the expected price and the social welfare increase, while the consumer surplus decreases, as the consumers network becomes denser. These results are reverse when search costs are high.
    Keywords: Networks, local externalities, non-sequential search
    Date: 2005–06
  7. By: Massa, Massimo; Simonov, Andrei
    Abstract: We study the link between portfolio choice and different college-based interaction – defined as the one that relates the portfolio choice of an investor to that of the other investors who went to the same college. We explain it in terms of a common cultural imprinting and the development of long-term friendship and alumni network and we directly quantify this bonding effect. We use a new dataset with information on portfolio choice – broken down at the stock level – wealth, income and demographic characteristics of a big panel of investors as well as information on the college they attended and their family situation at the time. We compare college-based interaction to other forms of social interaction, such as educational, professional and geographical interaction, properly controlling for all the standard motivations of portfolio theory, such as hedging of non-financial income risk, familiarity and information effects, wealth and income effect, a host of demographic, geographic and professional dummies, trend-chasing and momentum behaviour. All the different sources of social interaction significantly affect stock-picking as well as the choice between direct and delegated investment, both statistically and economically. College-based interaction is, however, the most important of them and the third single most important factor affecting stock picking. The impact of college-based interaction aggregates at the market level and affects stock prices. For each company, we construct measures of the degree of strength of college-based interaction among shareholders. We show that an increase in the strength of interaction reduces stock return and volatility. This can be rationalized in terms of recent theories on the impact of dispersion of beliefs in the presence of short-sale constraints.
    Keywords: asset pricing; education; portfolio choice; social interaction
    JEL: G11 G14
    Date: 2004–12
  8. By: Selod, Harris; Zenou, Yves
    Abstract: We consider a search-matching model in which black workers are discriminated against and the job arrival rates of all workers depend on social networks as well as distance to jobs. Location choices are mainly driven by the racial preferences of households. There are two possible urban equilibrium and we show that, under some reasonable conditions, all workers are better off in the equilibrium where blacks are close to jobs. We then consider two policies: affirmative action and employment subsidies to the firms that hire black workers. We show that, in cities where black workers reside far away from jobs, the optimal policy is to impose higher quotas or employment subsidies than in cities where they live close to jobs.
    Keywords: Affirmative Action; employment subsidies; racial preferences; social networks; spatial mismatch
    JEL: J15 J41 R14
    Date: 2005–02
  9. By: Casella, Alessandra; Hanaki, Nobuyuki
    Abstract: Economists and sociologists disagree over markets’ potential to take over functions typically performed by networks of personal connections. First among them is the reliable transmission of information. In this paper we begin from a model of labour markets where social ties are stronger between similar individuals, and thus firms employing productive workers prefer to rely on personal referrals by their employees than to hire on the open anonymous market (Montgomery (1991)). However, we allow workers in the anonymous market to engage in a costly action that has the potential to signal their high productivity. We study the extent to which the possibility of signalling reduces the reliance on the network. We find that the network is remarkably resilient - only for a small minority of parameter values does the network disappear. The problem is that to be effective signalling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive, or it is not informative; but it must be cheap, or the network can undercut it.
    Keywords: networks; referral hiring; referral premium; signalling
    JEL: A14 D83 J31 J41
    Date: 2005–03
  10. By: Fidrmuc, Jan; Gerxhani, Klarita
    Abstract: Recent Eurobarometer survey data are used to document and explain the stock of social capital in 27 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption appear particularly important.
    Keywords: capitalism; institutions; social capital; transition
    JEL: O17 O57 P37 Z13
    Date: 2005–05
  11. By: Lippert, Steffen; Spagnolo, Giancarlo
    Abstract: We model networks of relational (or implicit) contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable sub-networks inhibit more valuable larger networks. The model provides formal definitions for individual and communities’ ‘social capital’ in the spirit of Coleman and Putnam.
    Keywords: collusion; cooperation; embeddedness; end-network effect; implicit contracts; indirect multimarket contact; industrial districts; networks; peering agreements; relational contracts; social capital; social relations
    JEL: D23 D43 L13 L29 O17
    Date: 2005–05
  12. By: Fernández, Raquel; Fogli, Alessandra
    Abstract: We study the effect of culture on important economic outcomes by using the 1970 Census to examine the work and fertility behaviour of women 30-40 years old, born in the US, but whose parents were born elsewhere. We use past female labour force participation and total fertility rates from the country of ancestry as our cultural proxies. These variables should capture, in addition to past economic and institutional conditions, the beliefs commonly held about the role of women in society, i.e. culture. Given the different time and place, only the beliefs embodied in the cultural proxies should be potentially relevant to women’s behaviour in the US in 1970. We show that these cultural proxies have positive and significant explanatory power for individual work and fertility outcomes, even after controlling for possible indirect effects of culture (e.g., education and spousal characteristics). We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible. We also show that the effect of these cultural proxies is amplified the greater is the tendency for ethnic groups to cluster in the same neighbourhoods.
    Keywords: cultural transmission; family; female labour force participation; fertility; immigrants; neighbourhoods; networks
    JEL: J13 J21 Z10
    Date: 2005–05
  13. By: Martin Desrochers; Klaus P. Fischer
    Abstract: The purpose of this paper is to perform a cross-country survey of the level of integration of systems of financial cooperatives (FC) and its effect on measures of performance. We develop a classification scheme based on a theoretical framework that builds on published work using transaction cost economics (TCE) to explain integration of large numbers of financial cooperatives into networks. We identify three critical level of increasing integration we call respectively atomized systems, consensual networks and strategic networks. Further, we test some of the propositions that result from the theoretical framework on an international sample of financial cooperative systems. Based on this analysis we can conclude that: i) Integration is less (more) important is developing (more developed) countries and for very small (large) financial cooperatives as a determinant of efficiency. However, integration tends to reduce volatility of efficiency and performance regardless of development. ii) Integration appears to help control measure of managers' expense preferences that tend to affect performance of FC. iii) Despite high costs of running hub-like organizations in highly integrated system, these systems economize in bounded rationality and operate at lower costs that less integrated systems.
    Keywords: Transaction cost economics, financial cooperatives, credit unions, networks, corporate governance, technical efficiency, x-efficiency
    JEL: G2 G3
    Date: 2005
  14. By: Vanhoucke, Mario; Coelho, José; Debels, Dieter; Tavares, Luis V.
    Abstract: In literature, both topological and resource-related measures are used to predict the difficulty of a project scheduling problem. Rapid progress regarding solution procedures has resulted in the development of a number of data generators in order to generate instances under a controlled design and in different standard sets with problem instances. These complexity measures need to serve as predictors for the complexity of the problem under study. In this paper, we report on results for the topological structure of a network. The contribution of this paper is threefold. First, we review six topological network indicators in order to describe the structure of a network in a detailed way. These indicators were originally developed by [20] and have been modified or sometimes completely replaced by alternative indicators in order to give a better description of the topology of a network. Secondly, we generate a large amount of different networks with four network generators. This allows us to draw conclusions on both the performance of different network generators and to give a critical remark on well-known datasets from literature. Our general conclusions are that none of the network generators are able to capture the complete feasible domain of all networks. Moreover, each network generator covers its own network-specific domain and, consequently, contributes to the generation of instance data sets. Finally, we perform computational results on the well-known resource-constrained project scheduling problem to proof that our indicators are reliable and have significant predictive power to serve as complexity indicators. Note
    Date: 2005–06–08

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