nep-net New Economics Papers
on Network Economics
Issue of 2005‒12‒09
fourteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The Formation of Risk Sharing Networks By Marcel Fafchamps; Flore Gubert
  2. Coordination in Networks Formation: Experimental Evidence on Learning and Salience By Matteo Galizzi; Michele Bernasconi
  3. Cooperation and Network Formation By Felipe Balmaceda
  4. The Impact of Entry and Competition by Open Source Software on Innovation Activity By Jürgen Bitzer; Philipp J.H. Schröder
  5. The Measure and Regulation of Competition in Telecommunications Markets By Marcel Boyer
  6. Who’s Who in Networks. Wanted: The Key Player By Ballester, Coralio; Calvó-Armengol, Antoni; Zenou, Yves
  7. Segregation in Networks By Giorgio Fagiolo; Marco Valente; Nicolaas J. Vriend
  8. Herding With and Without Payoff Externalities - An Internet Experiment By Drehmann, Mathias; Oechssler, Jörg; Roider, Andreas
  9. Insurer-Provider Networks in the Medical Care Market By Katherine Ho
  10. Some remarks on Internet-based territorial planning: the role of local public institutions on the diffusion of broadband access (In French) By Jérome VICENTE (LEREPS-GRES); Godefroy DANG NGUYEN (ENST-Bretagne - LUSSI & ICI-UBO)
  11. Neckties in the Tropics: A Model of International Trade and Cultural Diversity By Vitor Trindade; James E. Rauch
  12. Internet Security, Vulnerability Disclosure and Software Provision By Choi, Jay-Pil; Fershtman, Chaim; Gandal, Neil
  13. Surviving Andersonville: The Benefits of Social Networks in POW Camps By Dora L. Costa; Matthew E. Kahn
  14. Migration Dynamics By Sergio Vergalli; Michele Moretto

  1. By: Marcel Fafchamps (Centre for the Studies of African Economies, University of Oxford); Flore Gubert (DIAL, IRD, Paris)
    Abstract: (English) This paper examines the endogenous formation of risk sharing networks in the rural Philippines. We show that geographic proximity is a major determinant of interpersonal relationships. We find little evidence that people form relationships to pool income risk. The existence of a pre-existing relationship between two individuals is a major determinant of subsequent gifts and informal loans between them, controlling for other proximity factors. From this we conclude that these transfers and informal loans are embedded in interpersonal relationships. These relationships are largely determined by proximity factors and are only weakly the result of purposeful diversification of income risk. There is, however, some evidence that the formation of risk sharing links is aimed at pooling health risk. The paper also makes a methodological contribution to the estimation of dyadic models. _________________________________ (français) Cet article examine la façon dont se forment les réseaux informels de partage des risques à partir de données collectées aux Philippines. Nous trouvons que les ménages enquêtés choisissent des partenaires potentiels d'entraide géographiquement proches d'eux mais non économiquement distants d'eux. Nous trouvons également que l'existence d'un lien ex ante est un déterminant important des dons et prêts informels observés entre ménages. Nous concluons de ces résultats empiriques que les transactions observées entre ménages s'inscrivent dans le cadre de relations de voisinage dont l'objectif premier n'est pas la diversification des risques de revenu. En revanche, un partage des risques liés à la santé semble être à l'oeuvre. L'article fait une contribution méthodologique à travers l'estimation de modèles dyadiques.
    Keywords: Network, risk-sharing, dyadic model, Philippines,réseau, partage du risque, modèle dyadique
    JEL: D85 O12 C49
    Date: 2005–11
  2. By: Matteo Galizzi (Università di Brescia); Michele Bernasconi (Università dell’Insubria)
    Abstract: We present experiments on repeated non-cooperative network formation games, based on Bala and Goyal (2000). We treat the one-way and the two-ways flow models, each for high and low link costs. The models show both multiple equilibria and coordination problems. We conduct experiments under various conditions which control for salient labeling and learning dynamics. Contrary to previous experiments, we find that coordination on non-empty Strict Nash equilibria is not an easy task for subjects to achieve, even in the mono-directional model where the Strict Nash equilibria is a wheel. We find that salience significantly helps coordination, but only when subjects are pre-instructed to think of the wheel network as a reasonable way to play the networking game. Evidence on learning behavior provides support for subjects choosing strategies consistent with various learning rules, which include as the main ones Reinforcement and Fictitious Play.
    Keywords: Experiments, Networks, Behavioral game theory, Salience, Learning dynamics
    JEL: C92 C72 D83
    Date: 2005–09
  3. By: Felipe Balmaceda
    Abstract: The present paper proposes a simple model for studying the interplay between self-enforcing cooperation and network formation. In particular, the model provides an answer to the ancient question of how cooperative behavior emerges in different communities and how the possibility of behaving cooperatively shapes the social structure of a community. In a sense, I provide an explanation of how trust, by which I mean the existence of self-sustainable cooperation, can emerge in a society and how the society is shaped by third-party enforcement.
    Date: 2005
  4. By: Jürgen Bitzer (Free University Berlin); Philipp J.H. Schröder (Aarhus School of Business)
    Abstract: This paper presents the stylized facts of open source software innovation and provides empirical evidence on the impact of increased competition by OSS on the innovative activity in the software industry. Furthermore, we introduce a simple formal model that captures the innovation impact of OSS entry by examining a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The paper identifies a pro-innovative effect of OSS competition.
    Keywords: open source software, innovation, strategic interaction
    JEL: L13 L30 L86
    Date: 2005–12–02
  5. By: Marcel Boyer
    Abstract: The development of the canadian telecommunications web is significantly influenced by the regulatory framework put in place to oversee the evolution of the web toward a competitive system. This paper has two specific objectives: first, to develop a methodological framework, which will allow a proper characterization of the level of competition in the telecommunications industry, more specifically in the residential local access market and second, to recommend some (significant) changes in the CRTC approach to the regulation of the Canadian Telecommunications industry. I argue that the current approach to the regulation of telecommunications in Canada is likely to generate significant harms to consumers and businesses as well as efficiency losses for the Canadian economy. I conclude that there is a urgent need for a telecommunications regulatory reform, with a stronger accent put on three crucial roles of the telecommunications regulator as the trusted generator of information for the consumers, as the manager of the level playing field conditions, and as the promoter of efficient investment programmes. <P>Le développement du réseau canadien des télécommunications est influencé de façon significative par le cadre réglementaire adopté pour régir l’évolution de ce réseau vers la concurrence. Cet article a deux objectifs principaux : d’une part, développer un cadre méthodologique adéquat pour caractériser le niveau de concurrence dans l’industrie des télécommunications, plus particulièrement du marché des services résidentiels locaux, et, d’autre part, de proposer des changements (importants) au cadre réglementaire actuel. Je montre que le cadre réglementaire actuel peut engendrer des problèmes importants pour les consommateurs et l’industrie ainsi que des pertes d’efficacité pour l’économie canadienne. Il existe un besoin urgent de réformer le cadre réglementaire actuel, en mettant l’accent sur trois rôles essentiels de l’agence de régulation des télécommunications comme fournisseur d’informations aux consommateurs, comme gestionnaire des conditions de concurrence loyale pour toutes les entreprises et comme promoteur de programmes d’investissement efficaces.
    Keywords: competition, regulatory reform, telecommunications , concurrence, réforme de la réglementation, télécommunication
    Date: 2005–11–01
  6. By: Ballester, Coralio; Calvó-Armengol, Antoni; Zenou, Yves
    Abstract: Finite population non-cooperative games with linear-quadratic utilities, where each player decides how much action she exerts, can be interpreted as a network game with local payoff complementarities, together with a globally uniform payoff substitutability component and an own concavity effect. For these games, the Nash equilibrium action of each player is proportional to her Bonacich centrality in the network of local complementarities, thus establishing a bridge with the sociology literature on social networks. This Bonacich-Nash linkage implies that aggregate equilibrium increases with network size and density. We then analyze a policy that consists in targeting the key player, that is, the player who, once removed, leads to the optimal change in aggregate activity. We provide a geometric characterization of the key player identified with an inter-centrality measure, which takes into account both a player’s centrality and her contribution to the centrality of the others.
    Keywords: centrality measures; peer effects; policies; social networks
    JEL: A14 C72 L14
    Date: 2005–11
  7. By: Giorgio Fagiolo (University of Verona, and Sant’Anna School of Advanced Studies, Pisa); Marco Valente (University of L’Aquila); Nicolaas J. Vriend (Queen Mary, University of London)
    Abstract: Schelling (1969, 1971, 1971, 1978) considered a simple model with individual agents who only care about the types of people living in their own local neighborhood. The spatial structure was represented by a one- or two-dimensional lattice. Schelling showed that an integrated society will generally unravel into a rather segregated one even though no individual agent strictly prefers this. We make a first step to generalize the spatial proximity model to a proximity model of segregation. That is, we examine models with individual agents who interact 'locally' in a range of network structures with topological properties that are different from those of regular lattices. Assuming mild preferences about with whom they interact, we study best-response dynamics in random and regular non-directed graphs as well as in small-world and scale-free networks. Our main result is that the system attains levels of segregation that are in line with those reached in the lattice-based spatial proximity model. In other words, mild proximity preferences can explain segregation not just in regular spatial networks but also in more general social networks. Furthermore, segregation levels do not dramatically vary across different network structures. That is, Schelling's original results seem to be robust also to the structural properties of the network.
    Keywords: Spatial proximity model, Social segregation, Schelling, Proximity preferences, Social networks, Undirected graphs, Best-response dynamics
    JEL: C72 C73 D62
    Date: 2005–11
  8. By: Drehmann, Mathias; Oechssler, Jörg; Roider, Andreas
    Abstract: Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experimentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation effects (i.e., the influence of success models) in the context of herding.
    Keywords: experiment; herding; information cascades; internet; network effects
    JEL: C92 D8
    Date: 2005–10
  9. By: Katherine Ho
    Abstract: Managed care health insurers in the US restrict their enrollees' choice of hospitals to specific networks. This paper investigates the causes and welfare effects of the observed hospital networks. A simple profit maximization model explains roughly 63 per cent of the observed contracts between insurers and hospitals. I estimate a model that includes an additional effect: hospitals that do not need to contract with all insurance plans to secure demand (for example, providers that are capacity constrained under a limited or selective network) may demand high prices that not all insurers are willing to pay. Hospitals can merge to form "systems" which may also affect bargaining between hospitals and insurance plans. The analysis estimates the expected division of profits between insurance plans and different types of hospitals using data on insurers' choices of network. Hospitals in systems are found to capture markups of approximately 19 per cent of revenues, in contrast to non-system, non-capacity constrained providers, whose markups are assumed to be about zero. System members also impose high penalties on plans that exclude their partners. Providers that are expected to be capacity constrained capture markups of about 14 per cent of revenues. I show that these high markups imply an incentive for hospitals to under-invest in capacity despite a median benefit to consumers of over $330,000 per new bed per year.
    JEL: I0
    Date: 2005–12
  10. By: Jérome VICENTE (LEREPS-GRES); Godefroy DANG NGUYEN (ENST-Bretagne - LUSSI & ICI-UBO)
    Abstract: This paper focuses on the market dynamics of broadband access and the implications on territorial planning. From the tools of the « economic geography of network », we study the supply conditions of internet-based infrastructures, taking into account the peculiar role played by local public institutions in this dynamics. We show that strategic interactions between suppliers, according to the geography and density of potential users and the nature of information flows in the demand side, engender a cumulative dynamics at the advantage of central regions relative to peripheral ones. We show also that the coming of local public institutions in the market dynamics of networks infrastructures can modify the interplay of strategic interactions, in that sense that we can observe a better diffusion from central regions to peripheral ones, but not a reduction of access inequality inside regions.
    Keywords: Internet-based territorial planning, strategic interactions, diffusion, local public institutions
    JEL: H54 L96 R10 R58
    Date: 2005
  11. By: Vitor Trindade (Department of Economics, University of Missouri-Columbia); James E. Rauch
    Abstract: Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are “compatible” with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. Our two-country analysis suggests a reform of cultural policy whereby import restrictions in the smaller country are removed, and are replaced by subsidies to the fixed costs of production of new cultural goods in its traditional style.
    Keywords: consumption network externalities, home market effect, globalization, cultural policy
    JEL: F12 F13 F15 Z10
    Date: 2005–11–30
  12. By: Choi, Jay-Pil; Fershtman, Chaim; Gandal, Neil
    Abstract: In this paper, we examine how software vulnerabilities affect firms that license software and consumers that purchase software. In particular, we model three decisions of the firm: (i) an upfront investment in the quality of the software to reduce potential vulnerabilities; (ii) a policy decision whether to announce vulnerabilities; and (iii) a price for the software. We also model two decisions of the consumer: (i) whether to purchase the software; and (ii) whether to apply a patch.
    Keywords: internet security; network effects; software; vulnerabilities
    JEL: L86 O3
    Date: 2005–10
  13. By: Dora L. Costa; Matthew E. Kahn
    Abstract: Twenty-seven percent of the Union Army prisoners captured July 1863 or later died in captivity. At Andersonville the death rate may have been as high as 40 percent. How did men survive such horrific conditions? Using two independent data sets we find that friends had a statistically significant positive effect on survival probabilities and that the closer the ties between friends as measured by such identifiers as ethnicity, kinship, and the same hometown the bigger the impact of friends on survival probabilities.
    JEL: I12 Z13
    Date: 2005–12
  14. By: Sergio Vergalli (University of Brescia); Michele Moretto (University of Brescia)
    Abstract: This paper tries to explain why most migration flows show some observable jumps in their processes, a phenomenon that seems to be sympathetic with the characteristic of irreversibility of migration. We present a real option model where the choice to migrate depends on both the differential wage between the host country and the country of origin, and on the probability of being fully integrated into the host country. The theoretical results show that the optimal migration decision of a single individual consists of waiting before migrating in a (coordinate) mass of individuals. The dimension of the migration flow depends on the behavioural characteristics of the ethnic groups: the more "sociable" they are, the larger the size of the wave and the lower the differential wage required. A second part of the paper is devoted to calibrating the model and simulating some migration flows to Italy in the last decade. The calibration is able to replicate the observable migration jumps in the short term. In particular, the calibrated model is able to conjecture the induced labour demand elasticity level of the host country and the behavioural rationale of the migrants.
    Keywords: Migration, Real Option, Labour Market, Network Effect
    JEL: F22 O15 R23
    Date: 2005–09

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