nep-net New Economics Papers
on Network Economics
Issue of 2005‒11‒05
ten papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Networks of Relations By Steffen Lippert; Giancarlo Spagnolo
  2. Social Networks in Ghana By Christopher Udry; Timothy G. Conley
  3. Barriers to network-specific innovation By Antoine Martin; Michael J. Orlando
  4. "There and Back Again: Airline Routes, Fares and Passenger Flows in Network Equilibria." By Joseph I. Daniel; Munish Pahwa
  5. Long-term Framework for Electricity Distribution Access Charges By Tooraj Jamasb; Karsten Neuhoff; David Newbery; Michael Pollitt
  6. Local Learning, Trade Policy and Industrial Structure Dynamics By Facundo Albornoz and Paolo Vanin
  7. Too Large or Too Small? Returns to Scale in a Retail Network By Frantisek Brazdik; Viliam Druska
  8. "(When) Do Hub Airlines Internalize Their Self-Imposed Congestion Delays?" By Joseph I. Daniel; Katherine Thomas Harback
  9. "Do Airlines that Dominate Traffic at Hub Airports Experience Less Delay?" By Joseph I. Daniel; Katherine Thomas Harback
  10. Macro Measures And Mechanics of Social Capital By Luke Keele

  1. By: Steffen Lippert (Université Toulouse 1 and Universität Mannheim); Giancarlo Spagnolo (Department of Economics, Stockholm School of Economics, C.E.P.R. ans Consip Spa.)
    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 subnetworks inhibit more valuable larger networks.
    Keywords: Networks, Relational Contracts, Indirect Multimarket Contact, Social Capital.
    JEL: L13 L29 D23 D43 O17
    Date: 2004–11
  2. By: Christopher Udry (Economic Growth Center, Yale University); Timothy G. Conley
    Abstract: In this chapter we examine social networks among farmers in a developing country. We use detailed data on economic activities and social interactions between people living in four study villages in Ghana. It is clear that economic development in this region is being shaped by the networks of information, capital and influence that permeate these communities. This chapter explores the determinants of these important economic networks. We first describe the patterns of information, capital, labor and land transaction connections that are apparent in these villages. We then discuss the interconnections between the various economic networks. We relate the functional economic networks to more fundamental social relationships between people in a reduced form analysis. Finally, we propose an equilibrium model of multi-dimensional network formation that can provide a foundation for further data collection and empirical research.
    Keywords: Endogenous Networks, Informal Credit, Social Learning
    JEL: O12 D85
    Date: 2004–05
  3. By: Antoine Martin; Michael J. Orlando
    Abstract: We examine incentives for network-specific investment and the implications for network governance. We model an environment in which participants that make payments over a network can invest in a technology that reduces the marginal cost of using the network. A network effect results in multiple equilibria; either all agents invest and network usage is high or no agents invest and network usage is low. When commitment is feasible, the high-use equilibrium can be implemented; however, when commitment is infeasible, fixed costs associated with use of the network-specific technology result in a holdup problem that implements the low-investment equilibrium. Thus, governance structures necessary to achieve commitment will be preferred to those necessary merely to achieve coordination. For example, mutual ownership by network users may emerge where users face risk of ex post renegotiation. Such a governance structure will also be sufficient to avoid the network effect.
    Keywords: Investments ; Equilibrium (Economics) ; Payment systems
    Date: 2005
  4. By: Joseph I. Daniel (Department of Economics, University of Delaware); Munish Pahwa (MBNA, Newark, DE)
    Abstract: We calculate mutual-best-response route networks for profit maximizing airlines serving large US air-traffic-hub cities. A simulated annealing algorithm determines which of over ten thousand potential routes receive direct or hub-and-spoke service. DOT’s Origin and Destination Survey is used to calibrate airline revenue and cost functions. Simulated route structures, airfares, passenger flows, and market concentration levels closely approximate actual US networks comprising over seventy percent of domestic air travel. The results support several controversial positions regarding airline competition. Average airfares by route are consistent with price-taking behavior. Existing industry concentration levels can be justified by cost-reducing economies of scale and scope. Control of multiple airports by individual airlines currently has minimal effects on airfares or passenger flows. Socially optimal route structures would concentrate traffic at fewer and larger airports—but reduce costs only modestly. Airport pricing and capacity can significantly affect network traffic patterns. Investigation of strategic pricing is left for future research.
    Keywords: Hub-and-spoke airline networks, simulated annealing, commercial aviation, airline competition, airline mergers, airfares, airport congestion, and airport capacity.
    Date: 2005
  5. By: Tooraj Jamasb; Karsten Neuhoff; David Newbery; Michael Pollitt
    Abstract: In order to achieve overall economic efficiency, incentive regulation of electricity distribution utilities must address two important and inter-related issues. First, the utilities’ allowed revenues need to be set at correct levels. Second, the access charging mechanism by which the utilities recover the allowed revenues must give the correct economic signals to generation and load connected to the network. This paper is concerned with the latter aspect of regulation. The paper discusses the main economic principles that should form the basis on which a distribution access charging model is developed. The charging model should have a number of attributes: be calibrated to each existing network; contain an asset register; be able to determine assets needed to meet new demand; find least-cost system expansion; compute network losses and handle ancillary services; estimate incremental operating and maintenance costs; be available to users; and be simple enough for external users to understand.
    Keywords: Electricity, network regulation, access charges, distributed generation
    JEL: L43 L51 L94
    Date: 2005–11
  6. By: Facundo Albornoz and Paolo Vanin
    Abstract: In a small open economy with heterogeneous firms, in which tariffs determine the mass of active firms, free trade optimality depends positively on the level of firm heterogeneity and negatively on transportation costs. The benefits from temporary protection depend on the level of backwardness: for a given mass of backward firms, the relative gains from protection increase with their quality and decrease with the quality of advanced firms; for given production quality levels, the relative advantage of protection increases with the mass of backward firms.
    Keywords: Production network, Learning externalities, Infant industry
    JEL: D51 D62 F12 F13
    Date: 2005–09
  7. By: Frantisek Brazdik; Viliam Druska
    Abstract: Performance in retailing is usually evaluated by routine use of ratio analysis, but due to the univariate nature of this simple management tool there are many drawbacks to the obtained results. Therefore, the aim of this study is to demonstrate successful employment of parametric and non–parametric methods for evaluating technical performance in retailing. We also show how to utilize DEA results, when parametric methods do not satisfactorily perform due to their strict distributional assumptions. Results of this study are used to optimize the retail chain of a European mobile telecommunication network operator by providing estimates of and recommendations for improvements in the productive efficiency of the chain operations. Estimates of store–level technical and scale efficiency indicate that a majority of stores are operating in the decreasing returns to scale region of the production possibility set. The employed methodology allows us to identify input excesses and to address a means of reducing them.
    Keywords: Data envelopment analysis application, linear programming, ef-ficiency, retail units
    JEL: C14 C44 D24 L81
    Date: 2005–09
  8. By: Joseph I. Daniel (Department of Economics, University of Delaware); Katherine Thomas Harback (Mitre Corporation)
    Abstract: We develop theoretical models of airport congestion with non-atomistic traffic and implement them empirically using data from twenty-seven major US airports to determine whether dominant airlines internalize or ignore self-imposed congestion. Estimates of minute-by-minute delay patterns at each airport calibrate structural models of landing and takeoff queues as dynamic functions of traffic rates and airport capacities. These functions determine the internal and external congestion that aircraft impose on one another. Specification tests largely reject the internalization model. Optimal pricing values all time using non-dominant aircraft cost coefficients and treats all delays as external—i.e., fees equal opportunity costs of allocating peak capacity to dominant airlines.
    Keywords: Hub-and-spoke airline networks, simulated annealing, commercial aviation, airline competition, airline mergers, airfares,
    JEL: H2 L5 L9 D6
    Date: 2005
  9. By: Joseph I. Daniel (Department of Economics,University of Delaware); Katherine Thomas Harback (Mitre Corporation)
    Abstract: The desirability of airport congestion pricing largely depends on whether dominant airlines otherwise fail to internalize their self-imposed congestion delays. Brueckner (2002) and Mayer and Sinai (2003) find (weak) statistically significant evidence of internalization. We replicate and extend these models by refining their measures of delay and controlling for fixed and random airport effects. For twenty-seven large US airports, we estimate every flight’s congestion delay attributable to its operating time. These time-dependent queuing delays result from traffic rates temporarily exceeding airport capacity, and are precisely the delays susceptible to peak-load congestion pricing. As modified, the models reject the internalization hypothesis.
    Keywords: Hub-and-spoke airline networks, simulated annealing, commercial aviation, airline competition, airline mergers, airfares,
    JEL: H2 L5 L9 D6
    Date: 2005
  10. By: Luke Keele (Nuffield College & Oxford University)
    Abstract: Interest in social capital has grown as it has become apparent that it is an important predictor of collective well-being. Recently, however, attention has shifted to how levels of social capital have changed over time. But focusing on how a society moves from one level of social capital to another over time requires better macro level measures.Better measures are required to test even basic hypotheses such as the establishing the direction of causality between the two components of social capital. In the following analysis, I develop macro measures of social capital through the development of longitudinal measures of civic engagement and interpersonal trust. I,then, use these measures to test a basic assumption about social capital. I, first, perform a direction of causality test to substantiate the causal direction between the two components of social capital. Second, I model civic engagement as a function of the time and monetary-related resources required for civic participation and interpersonal trust as a function of long term trends in civic engagement and a set of controls for collective experiences. The result is more than just the ¯rst over time measures of social capital, but also an increase in our understanding of social capital as a macro process with complex causes and effects.
    Keywords: Social capital, social networks, trust
    JEL: P Q Z
    Date: 2005–11–03

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