nep-net New Economics Papers
on Network Economics
Issue of 2007‒01‒14
twenty-one papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Broadband Internet: Net Neutrality versus Open Access By Christiaan Hogendorn
  2. Network architecture and traffic flows By John Morgan; Henrik Orzen; Martin Sefton
  3. Internet Peering as a Network of Relations By Steffen Lippert; Giancarlo Spagnolo
  4. Experiments with Network Formation By John Duffy; Dean Corbae
  5. Technical and Data Appendix to `Experiments with Network Formation` By John Duffy; Dean Corbae
  6. Congestion Pricing vs. Slot Constraints to Airport Networks By Achim I. Czerny
  7. Networks Within Cities and Among Cities: A Paradigm for Urban Development and Governance By Tomaso Pompili
  8. Determinants of University Spin-Offs’ Growth: Do Socioeconomic Networks and Support Matter? By Danny Soetanto; Marina van Geenhuizen
  9. Code-sharing and its effect on airline fares and welfare By Achim I. Czerny
  10. Coalition Formation, Bargaining and Investments in Networks with Externalities: Analysis of the Eurasian Gas Supply Network By Ikonnikova, Svetlana
  11. Co-authorship in Regional Science: A Network Approach By Gunther Maier; Jouke van Dijk
  12. Signalling in Social Networks: An Empirical Study of Denominational Fractionalization in the USA By Mehmet Karacuka; Martin Leroch
  13. Simulation and Optimization of Trajectories in a Congested Network By Gunnar Flötteröd; Kai Nagel
  14. The Geographical and Institutional Proximity of Scientific Collaboration Networks By Frank Van Oort; Roderik Ponds; Koen Frenken
  15. Economic Impacts of a New Road Network in San-En Region, Japan: A Spatial Computable General Equilibrium Model By Yuzuru Miyata; Hiroyuki Shibusawa; Yasuhiro Hirobata; Akira Ohgai
  16. Innovation Networks in the Learning Economy By Mercy Escalante-Ludena
  17. The Connection of Greece With the Trans-European Transportation and Communication Networks By Theodoros Andrianos; Michalis Karakotsoglou; Charalampos Rizos
  18. Economic Networks and Urban Complementarities in the Dutch Randstad Region By Otto Raspe; Frank Van Oort; Martijn Burger
  19. Science and Technology Parks in Two Lagging Regions of Spain: A Comparative Evaluation Using an Innovation Network Approach By Achilleas Tsamis
  20. Externalities and Taxation/Subsidization Policy of Vehicle Information and Communication System By Hiroaki Miyoshi
  21. The Museums Network Model of the Piraeus Bank Group Cultural Foundation By Elia Vlachou; Stella Demestiha

  1. By: Christiaan Hogendorn (Economics Department, Wesleyan University)
    Abstract: “Network neutrality” and “open access” are two policies designed to preserve openness on the Internet. Open access mandates openness of conduits (e.g. television cable and DSL) to service providers (e.g. America Online), while network neutrality mandates openness to advanced content (streaming video, interactive e-commerce, etc.). We develop a systems model with free entry and competition in all three industry segments (conduits, service provider intermediaries, and content) and examine the effects of the two types of regulation. We find that open access does not necessarily result in more openness of content and is not a substitute for network neutrality.
    Keywords: network neutrality, open access, broadband
    JEL: L1 L5 L9
    Date: 2006–09–15
  2. By: John Morgan (University of California, Berkeley); Henrik Orzen (University of Nottingham); Martin Sefton (University of Nottingham)
    Abstract: This paper presents theory and experiments to investigate how network architecture influences route-choice behavior by comparing outcomes across several different networks. The network changes we consider are based on abstract examples illustrating the Pigou-Knight-Downs and Braess Paradoxes. We show that these paradoxes are specific examples of more general classes of network change properties that we term the “least congestible route” and “size” principles, respectively. We find that technical improvements to networks induce adjustments in traffic flows in the direction predicted by equilibrium theory. In the case of network changes based on the Pigou-Knight-Downs Paradox, these adjustments undermine short-term payoff improvements. In the case of network changes based on the Braess Paradox, these adjustments reinforce the counter-intuitive, but theoretically predicted, effect of reducing payoffs to network users.
    Date: 2006–07
  3. By: Steffen Lippert (Massey University, Department of Commerce, PB 102 904, NSMC, Auckland, New Zealand. Tel. +64 9 414 0800 Ext. 9283.; Giancarlo Spagnolo (Stockholm School of Economics, Department of Economics, P.O. Box 6501, SE–113 83 Stockholm, Sweden, and Consip Research Unit, Via Isonzo, 19/E, I–00198 Rome, Italy. Tel +39 320 431 2186.
    Abstract: We apply results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric ISPs. It is shown that - from a network of relations perspective – ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. We also explain why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have rather negative effects on the sustainability of the overall peering network.
    Date: 2006–11
  4. By: John Duffy; Dean Corbae
    Abstract: We examine how groups of agents form trading networks in the presence of idiosyncratic risk and the possibility of contagion. Specifically` four agents play a two--stage finite repeated game. In the first stage` the network structure is endogenously determined through a noncooperative proposal game. In the second stage` agents play multiple rounds of a coordination game against all of their chosen `neighbors\` after the realization of a payoff relevant shock. While parsimonious` our four agent environment is rich enough to capture all of the important interaction structures that have appeared in the networks literature` including bilateral (marriage)` local interaction (wheel)` star` and uniform matching (complete) networks. Marriage is not only the ex-ante efficient network in our environment` but also stable in the sense of being immune to unilateral deviations. Since our framework admits multiple equilibria` we examine which types of networks are likely to emerge through a series of experiments. Our experimental findings largely confirm the predictions of our model.
    Date: 2006–12
  5. By: John Duffy; Dean Corbae
    Abstract: This appendix provides proofs and the entire set of data used in Corbae and Duffy (2006)` ``Experiments with Network Formation\`\`. In particular we show that for the environment laid out in that paper` a marriage network is not only the ex-ante efficient network` but also stable in the sense of being immune to unilateral deviations.
    Date: 2006–12
  6. By: Achim I. Czerny (Workgroup for Infrastructure Policy (WIP), Technische Universität Berlin)
    Abstract: Congestion has become a problem for many airports throughout the world. Two different policy options to control congestion are analyzed in this paper: slot constraints and congestion pricing. In particular, our model takes into account that the airline industry is characterized by significant demand uncertainty. Furthermore, due to the network character of the airline industry, the demand for airport capacities normally is complementary. We show that this favors the use of slot constraints compared to congestion pricing from a social point of view. In contrast, for monopolistic airports, prices as instruments constitute a dominant choice.
    Keywords: Slots, uncertainty, monopolistic airports, regulation
    JEL: D42 L93
  7. By: Tomaso Pompili
    Abstract: Networks and networking have become fashionable concepts and terms in regional science, and in particular in regional and urban geography in the last decade: we speak about network firms, network society, network economy but also network cities, city-networks, reti urbane, reseaux de villes. Only catch-words for somebody; a true new scientific paradigm according to others. Our opinion is that in fact we are confronted with a new paradigm in spatial sciences, under some precise conditions: - that its exact meaning is thoroughly defined, - that its theoretical economic rationale is justified, - that the novelty of its empirical content is clearly pointed out, with respect to more traditional spatial facts and processes that can easily be interpreted through existing spatial paradigms. The relevant theoretical building block on which the network concept or paradigm may be constructed are: - a new view of the economy as a system or web of links between individuals, firms and institutions, where links depend on experience and evolve through learning processes; the existing endowment of knowledge and other production factors is put into value through a relational capability addressed towards the exchange and collection of information, building reputation and trust, creating synergies, cutting down uncertainty, boosting learning processes; - the acknowledgement of cooperation as a new organisational and behavioural form, intermediate between hierarchy (internal development and merging of external activities through direct control) and market resort; cooperation networks among firms collaborating with each other on technological advances and innovation projects were the earlier phenomena that were abundantly explored in the past. In a spatial perspective, two phenomena in particular are worth exploring today through the network concept: - networking as cooperation among individuals, firms and institutions taking place inside the cities concerning collective action, public/private partnerships on large urban projects and the supply of public goods, and giving rise to new forms of urban governance; - networking as inter-urban cooperation, assuming the cities as economic actors, competing but also cooperating in the global arena where locations of internationally mobile factors (professionals, corporations, institutions) are decided and negotiated. The paper is organised in the following way: - a major section is devoted to the interpretation of the micro-economic efficiency of local networking (local urban networks), in terms of the usual criteria of optimal allocation of resources and collective welfare, viewing the network as an organisational alternative between market failure and state failure; - a transition section deals with the interpretation of cities, a collective actor at best, as individual/unitary economic actors, given the case for collective action among interest groups, the possibility of defining in broad terms a function of collective preference referring to non-mobile local actors, the engagement of public and private actors in processes of strategic planning and definition of shared visions for the future of the city vis-a-vis mobile actors; - another main section interprets competition and cooperation among cities (inter-city-networks) underlining advantages, risks and conditions for maximising overall comprehensive well-being. JEL classification: D70, H77, R58
    Date: 2006–08
  8. By: Danny Soetanto; Marina van Geenhuizen
    Abstract: University spin-offs (USOs), as a type of entrepreneurial firms, face the challenge of obtaining sufficient resources to realize perceived business opportunities. USOs are vulnerable to many obstacles in this endeavor, particularly obstacles related to a lack of entrepreneurial knowledge (skills). Support such as office facilities, loan, and business coaching provided by incubator organizations, may help USOs to overcome obstacles. On the other hand, USOs may also overcome the lack of resources by participating in networks of supportive relationships. Social networking by USOs, including its spatial dimension, is not well understood. For instance, it is still not known how universities as a main source of knowledge contribute to the knowledge needs of nearby USOs; similarly, the spatial layout of knowledge relations of USOs has remained virtually unknown. This paper attempts to fill this knowledge gap. Our conceptual model of early growth of USOs, in terms of knowledge needs and fulfilment, is based on resource-based theory and social network theory. In this paper, we assume that USOs’ embeddedness in a network of ties is an important source of variation in the acquisition of knowledge resources. We argue that, aside from support from incubation organizations, USOs that maintain networks rich in bridging or boundary-spanning ties with knowledge institutions/actors are better-off compared with USOs that don’t employ such ties. We focus on the role of local institutions, particularly the university, as a source of knowledge. Our assumptions are tested on the basis of a sample of academic spin-offs of TU Delft, the Netherlands. The results from regression modeling are expected to support the embeddedness hypothesis and to produce new insights about the link between USOs’ social networks, the acquisition of knowledge and survival and growth.
    Date: 2006–08
  9. By: Achim I. Czerny (Workgroup for Infrastructure Policy (WIP), Technische Universität Berlin)
    Abstract: Airlines frequently use code-share agreements allowing them to market seats on flights operated by partner airlines. Current studies argue that with complementary networks this generates positive welfare effects because fares for interline passengers who rely on the service of multiple airlines are supposed to fall. However, with codeshare agreements airlines can price discriminate between interline and other passengers. This might harm the latter which has been ignored so far. We show that code-share agreements can lead to welfare losses in the case of complementary networks.
    Keywords: Airlines, alliances, code-share agreements, antitrust immunity, price discrimination
    JEL: D01 L13 L41 L51 L93
  10. By: Ikonnikova, Svetlana
    Abstract: We present a new methodology to study how upstream (e.g. producers) and downstream (e.g. transiters) players form coalitions, bargain over joint profit sharing and invest. Within coalitions players combine resources, coalitions compete on a market. Profit of each coalition depends on the cooperation among the outside players. Hence, we consider a game with externalities. To find the equilibrium coalition structure and the expected payoffs, we use the solution proposed by Maskin (2003). Payoffs reflect the bargaining power and depend on capacities of players. We show, how investment options available to players matter. We apply the study to analyze the Eurasian gas supply network. Russia and Turkmenistan - producers and Ukraine, Belorus, Azerbaijan, Iran - transiters form coalitions to supply gas and bargain over profit sharing. Besides, the players invest in pipelines. We derive the bargaining power of the countries from the architecture of the network and calculate the strategic value of the different pipeline projects.
    Keywords: Partition Function; Coalitional Bargaining; Coalition Formation; Externalities; Gas Supply
    JEL: C72 C71
    Date: 2005–12
  11. By: Gunther Maier; Jouke van Dijk
    Date: 2006
  12. By: Mehmet Karacuka; Martin Leroch (Department of Economics, Ege University)
    Abstract: An economic signalling model contributing to the explanation of religious schism is presented. Religious groups are interpreted as a device for exchanging information about and via others. Two effects result. First, the larger the network, the worse the signal quality one receives of the type of other members. Second, the larger a network, the more potentially valuable information is available. A modernizing economy is characterized by increasing overall transaction costs. Economizing on transaction costs by splitting from existing groups, and therefore increasing the signal value, could bear an economic advantage. Supporting empirical data are presented. In our view, our findings also contribute to the explanation of the so-called Kelley Thesis, stating that religious movements with stricter enforcement of their behavioural norms are growing in size, while such with rather liberal attitudes toward their norm enforcement face a loss of members. Supporting historical and empirical results are presented.
    Keywords: Kelley Thesis, Religion, Religious Groups, Schism, Signalling, Social Capital, Fractionalization
    JEL: N20 O17 R12 R15 Z12 Z13
    Date: 2006–12
  13. By: Gunnar Flötteröd (Berlin University of Technology, Group for Transport Systems Planning and Transport Telematics); Kai Nagel (Berlin University of Technology, Group for Transport Systems Planning and Transport Telematics)
    Abstract: The subject of this article is twofold. Firstly it describes how a dynamic macroscopic network loading model can be used to simulate the movement of arbitrarily complex individual particles (agents) through a network without loss of the macroscopic model’s differentiability. Based on this result the problem of minimizing a given functional of the macroscopic model’s states by adjustment of individual agents’ trajectories is considered. A solution procedure is proposed, which is based on subsequent linearizations of the overall system dynamics and time variant best path calculations.
    Keywords: congestion, transportation, networks
    JEL: L91 C6
  14. By: Frank Van Oort; Roderik Ponds; Koen Frenken
    Abstract: The geography of innovation has established itself as a central subject in economic geography. Geographical proximity to firms and organizations like universities is supposed to have a positive effect on a firms’ innovative performance. One of the reasons causing these positive agglomeration effects is the fact that collaboration is eased by geographical proximity. Although the role of proximity for collaboration is a well researched theme with regard to innovation, less is known about the role of proximity in scientific collaboration and how this affects the probability and nature of networking among research institutions. This is surprising given the fact that collaboration in science has become a central policy issue. In this paper we set out a number of theoretical considerations about the role of geography for innovation and see whether these apply for science as well. The empirical part will focus on the geography of collaboration in scientific knowledge production, testing the hypothesis that collaboration between different kinds of organizations is geographically more localized than collaboration between the same kinds of organizations due to institutional or organizational proximity. Besides this we will analyze the importance of spatial proximity for various forms of collaboration (such as university-university and university-firm collaboration) using the concept of the gravity model. Finally we will look at the spatial structure of these collaboration networks using insights from social network methodology. Based on co-publications, central nodes of collaborative interaction and network structures are analysed over time. On the network-level we conclude on differences in the fields of life- and physical sciences and on differences on the type of relations according to university-firm, university-university and university-governmental institution linkages. On the regional level we conclude on the centrality and spatial extent of scientific collaboration hubs over time
    Date: 2006–08
  15. By: Yuzuru Miyata; Hiroyuki Shibusawa; Yasuhiro Hirobata; Akira Ohgai
    Abstract: In this paper, we aim to evaluate impacts of a new road network on the regional economy in San-en, Japan. San-en area is a boundary region between Aichi and Shizuoka Prefectures where the industrial sector is concentrated. The regional economy in San-en strongly depends on the regional transportation networks. Recently, a new road construction is planned in the region. The efficiency of road investment is expected for the regional economy. We construct a spatial computable general equilibrium model to evaluate the border economy. The spatial economic impacts of a new road construction are analyzed by the numerical simulation under several scenarios.
    Date: 2006–08
  16. By: Mercy Escalante-Ludena
    Abstract: This paper presents breakthroughs of the proposal for a methodology to develop innovation networks with virtual links. It considers stages of analysis, design, implementation and follow up and can be applied to both large companies and SMEs. Fragmented approaches have predominance in literature, for this reason we want to close that gap somehow, within the framework of a systemic, dynamic, organic, and transparent approach. The methodology values the already existing contributions, from which new elements have been added, specially the support of electronic networks (ICT). We consider that innovation in networks must transcend spatial frontiers, thus considering virtual links since they turn the organizations faster and more flexible, therefore facilitating a more efficient access to information and knowledge; considered the key aspects in today’s interactive innovation process. The research methodology was bibliographical, documental, and exploratory.
    Date: 2006–08
  17. By: Theodoros Andrianos; Michalis Karakotsoglou; Charalampos Rizos
    Abstract: Transportation and communication networks comprise major structure components in the development of a country. The modern economic systems together with the so-called phenomenon of globalization not only demand the construction of extended networks at the dominion of a country, but their connection with networks of other countries as well. For the successful connection of transportation and communication networks certain strategies have to be implemented. The European Union (E.U.) has been a pioneer in establishing connections between its members and other countries of the continent. Thus, Trans-European Networks (TENs) of transportation, communication and energy have been created. Greece, as a member of the European Union, participates in the promotion and construction of the abovementioned networks. Within the framework of the present paper the Trans-European transportation and communication Networks of Greek interest are presented. A description of the economical and technical characteristics of these networks is given. Moreover, an attempt is made to define their expedience and feasibility, as well as the problems arising during their construction. In addition, the effects these networks have on Greek economy and regional development are examined. Finally, an effort is made to examine how these networks contribute to the best utilization of Greece’s geographical position, together with overcoming the fact that Greece has no common borders with other E.U. members.
    Date: 2006–08
  18. By: Otto Raspe; Frank Van Oort; Martijn Burger
    Abstract: In this paper we analyze the regional embeddedness of firm’s networks in Dutch regions. Theorizing on urban economic networks is an important issue in the urban economic growth literature (Batten 1995, Hess 2004). For this, 2000 firms in basic sectors (industrial, business-services and wholesale) provided information on their ten most important relationships with other firms in terms of turnover. Besides the relations themselves, the type of relations (standardized, customized or joint-venture), the frequency of relations, the sectoral composition and the exact destination of relations are known. These aspects are used to create subsamples that are analyzed. We draw conclusions of the shares of intra-urban relations, intra-region relations, national relations and international relations. Aggregated to the municipal level, we test for the central place hypothesis of firms’ subcontracting and delivering relations as opposed to the network hypothesis of multinodality, in six regions in the Netherlands. Conclusions on the importance of both paradigms are drawn and related to recent policy initiatives that aim at urban network development. Batten, D. (1995), “Network cities: creative urban agglomerations for the 21st Centuryâ€. In: Urban Studies 32, pp. 313-327. Hess, M. (2004), “Spatial relationships? Towards a reconceptualization of embeddedness†In: Progress in Human Geography 28, pp. 165-186.
    Date: 2006–08
  19. By: Achilleas Tsamis
    Abstract: Science and Technology Parks (STPs) have been widely used as innovation support and regional development instruments in most European countries. In Objective 1 regions of South Europe STPs projects were developed during the 90s through regional, national or EU structural funds as tools for promoting innovation and technology upgrade. Most existing studies cast doubt on the effectiveness of parks in achieving their goals, focussing on the traditional measures of the parks added-value (profitability and growth) to the tenant companies, the university-industry linkages developed. However, more recent developments of territorial innovation models stress the role of networks and interactions for knowledge creation and diffusion. While these approaches imply that the Parks – in their strict spatial nature – may become redundant in a networked space, they can also be used to identify additional performance assessment criteria focusing on the role of the park for the development of interactions, linkages and cooperation inside as well as outside its area. The quantity and quality of linkages inside and outside the STP area and its operation as an innovation cooperation promoter in the regional and broader space are used in this assessment. The present work assesses the performance of STPs in Objective 1 regions of South Europe. It develops an evaluation framework that integrates – together with the traditional linear performance criteria – the concepts of networking, interaction and cooperation and uses it to compare the performance of Parks in two regions in Greece (Thessaloniki and Crete) and two in Spain (Asturias and Andalusia). Our preliminary results from in depth analysis show that while there are different levels of success in terms of the traditional metrics/criteria, we observe in general low levels of interaction and cooperation developed inside the parks as well as with the broader region. The Parks do not seem to operate – at least so far – as places that facilitate intensive knowledge exchange inside and outside their area.
    Date: 2006–08
  20. By: Hiroaki Miyoshi
    Abstract: Traffic congestion in urban areas has become serious both in Japan and European countries.This study aims to calculate the optimal penetration level and taxation/subsidization level of VICS. VICS(Vehicle Information and Communication System) is a digital data communication system which promptly provides the latest necessary road traffic information to drivers via car navigation equipment. Drivers can receive real-time road traffic information about congestion and regulation 24 hours a day, 7 days a week. The world's first VICS service started in Japan in April 1996. It is impossible to realize the optimal level of penetration in the market mechanism when a service has technological externalities. VICS must have two type of technological externality. One is positive one-way externality which implies that the higher the level of penetration of VICS, the lower the travel times to the non-equipped drivers because of congestion reducing. The other is negative network externality which implies that a marginal equipped driver adversely affects the already equipped driver by increasing the travel time on alternative routes. Hence taxation or subsidization must be necessary to realize the optimal penetration level of VICS. Many studies explored the effect of market penetrations of PRG(route planning and guidance) on overall system travel time(e.g. Emmerink et al.(1995)). These studies, however, considered market penetration as an exogenous parameter. Recently, Yang (1999) developed the model to calculate the market penetration level endogenously. Lo and Szeto (2002) provided the methodology to analyze penetration level which simultaneously satisfies the three objectives (service providersÂf objective, traffic management agency's objective and usersÂf objective). But there are no studies to explore the optimal penetration level at which the marginal social benefit is equal to marginal social cost. This study develops the partial equilibrium economic model to calculate the optimal penetration level and taxation/subsidization level of VICS and calculate them by applying this model to Kantou-Area where is the most congested area in Japan. The result of our analysis shows that it must be necessary to realize optimal level of penetration of VICS to impose a fixed charge per VICS unit except in the case where the effect of negative externality is very weak.
    Date: 2006–08
  21. By: Elia Vlachou; Stella Demestiha
    Abstract: The Piraeus Bank Cultural Foundation (P.I.O.P) aims in rescuing, recording and promoting the heritage and cultural identity of Greece. Within this framework it organises and manages a network of thematic museums, which are continuously expanding in the regional parts of Greece. The three already existing museums (The Silk Museum in Soufli, The Open-Air Water Power Museum in Dimitsana, and the Museum of the Olive and the Greek Olive Oil in Sparta) have developed to become cultural centers in continuous contact and co-operation with the local societies. At the same time five new museums have been designed and are being created in accordance with contemporary museological specifications and are in their final stage of completion: the Museum of Marble Crafts in Tinos, the Museum of Industrial olive-oil production in Lesvos, the Rooftile and Brickworks Museum in Volos, the Museum of Technology of Paper and History of Greek Typography in Thessaloniki and the Museum of Traditional Crafts and Environment in Stymfalia. Within this framework P.I.O.P. has adopted a unique managerial model: the Network is staffed with experienced personnel, specialised in cultural management, which undertakes the scientific supervision, the managerial, accounting and secretarial coverage of the museums and at the same time, provides for their maintenance, impeccable operation and projection. This operational model is implemented with the unreserved co-operation of the local society and authorities. The paper aims to develop the relevant issue and to introduce the solutions that have been adopted in order to ensure the best results.
    Date: 2006–08

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