nep-net New Economics Papers
on Network Economics
Issue of 2007‒05‒04
two papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Marginal contribution, reciprocity and equity in segregated groups: Bounded rationality and self-organization in social networks By Alan Kirman; Sheri Markose; Simone Giasante; Paolo Pin
  2. A smart market for passenger road transport (SMPRT) congestion: an application of computational mechanism design By Sheri Markose; Amadeo Alentorn; Deddy Koesrindartoto; Peter Allen; Phil Blythe; Sergio Grosso

  1. By: Alan Kirman; Sheri Markose; Simone Giasante; Paolo Pin
    Abstract: We study the formation of social networks that are based on local interaction and simple rule following. Agents evaluate the profitability of link formation on the basis of the Myerson-Shapley principle that payoffs come from the marginal contribution they make to coalitions. The NP-hard problem associated with the Myerson-Shapley value is replaced by a boundedly rational 'spatially' myopic process. Agents consider payoffs from direct links with their neighbours (level 1) which can include indirect payoffs from neighbours' neighbours (level 2) and up to M-levels that are far from global. Agents dynamically break away from the neighbour to whom they make the least marginal contribution. Computational experiments show that when this self-interested process of link formation operates at level 2 neighbourhoods, agents self-organize into stable and efficient network structures that manifest reciprocity, equity and segregation reminiscent of hunter gather groups. A large literature alleges that this is incompatible with self-interested behaviour and market oriented marginality principle in the allocation of value. We conclude that it is not this valuation principle that needs to be altered to obtain segregated social networks as opposed to global components, but whether it operates at level 1 or level 2 of social neighbourhoods. Remarkably, all M>2 neighbourhood calculations for payoffs leave the efficient network structures identical to the case when M=2.
    Date: 2007–04–28
  2. By: Sheri Markose; Amadeo Alentorn; Deddy Koesrindartoto; Peter Allen; Phil Blythe; Sergio Grosso
    Abstract: To control and price negative externalities in passenger road transport, we develop an innovative and integrated computational agent based economics (ACE) model to simulate a market oriented "cap" and trade system. (i) First, there is a computational assessment of a digitized road network model of the real world congestion hot spot to determine the "cap" of the system in terms of vehicle volumes at which traffic efficiency deteriorates and the environmental externalities take off exponentially. (ii) Road users submit bids with the market clearing price at the fixed "cap" supply of travel slots in a given time slice (peak hour) being determined by an electronic sealed bid uniform price Dutch auction. (iii) Cross-sectional demand data on car users who traverse the cordon area is used to model and calibrate the heterogeneous bid submission behaviour in order to construct the inverse demand function and demand elasticities. (iv) The willingness to pay approach with heterogeneous value of time is contrasted with the generalized cost approach to pricing congestion with homogeneous value of travel time.
    Date: 2007–04–28

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