nep-net New Economics Papers
on Network Economics
Issue of 2008‒06‒07
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. The Economic Properties of Software By Sebastian von Engelhardt
  2. Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly By Dimitra Petropoulou
  3. Information Costs, Networks and Intermediation in International Trade By Dimitra Petropoulou
  4. On Heterogeneous Covert Networks By Lindelauf, R.; Borm, P.E.M.; Hamers, H.J.M.
  5. Towards a Network Description of Interbank Payment Flows By Marc Pröpper; Iman van Lelyveld; Ronald Heijmans
  6. Bayesian Learning in Social Networks By Daron Acemoglu; Munther A. Dahleh; Ilan Lobel; Asuman Ozdaglar
  7. How change agents and social capital influence the adoption of innovations among small farmers: Evidence from social networks in rural Bolivia By Monge, Mario; Hartwich, Frank; Halgin, Daniel

  1. By: Sebastian von Engelhardt (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: Software is a good with very special economic characteristics. Taking a general deï¬nition of software as its starting-point, this article systematically elaborates the central qualities of the commodity which have implications for its production and cost structure, the demand, the contestability of software-markets, and the allocative efï¬ciency. In this context it appears to be reasonable to subsume the various characteristics under the following generic terms: software as a means of data-processing, software as a system of commands or instructions, software as a recombinant system, software as a good which can only be used in discrete units, software as a complex system, and software as an intangible good. Evidently, software is characterized by a considerable number of economically relevant qualities—ranging from network effects to a subadditive cost function to nonrivalry. Particularly to emphasise is the fact that software fundamentally differs from other information goods: First, from a consumer's perspective the readability and other aspects concerning how the information is presented, is irrelevant. Second, the average consumer/user is interested only in the funtionality of the algorithms but not in the underlying information.
    Keywords: digital goods, compatibility, information good, network effects, nonrivalry, open source, recombinability, software
    JEL: D82 D83 D62 D85 K11 L17
    Date: 2008–06–04
  2. By: Dimitra Petropoulou
    Abstract: A two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolistic service providers to some contacts but duopolists over contacts they share in their network overlap. the intermediaries' inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.
    Keywords: International Trade, Pairwise Matching, Information Cost, Intermediation, Networks
    JEL: F10 C78 D43 D82 D83 L10
    Date: 2008–02
  3. By: Dimitra Petropoulou
    Abstract: This paper presents a pairwise matching model with two-sided information asymmetry toanalyse the impact of information costs on endogenous network building and matching byinformation intermediaries. The framework innovates by examining the role of informationcosts on incentives for trade intermediation, thereby endogenising the pattern of direct andindirect trade. Intermediation is shown to unambiguously raise expected trade volume andsocial welfare by expanding the set of matching technologies available to traders. Moreover,convexity in network-building costs is necessary for both direct and indirect trade to arise inequilibrium while the pattern of trade is shown to depend on the level of information costs aswell as the relative effectiveness of direct and indirect matching technologies with changinginformation costs. The model sheds light on the relationship between information frictionsand aggregate trade volume, which may be non-monotonic as a result of conflicting effects ofinformation costs on the incentives for direct and indirect trade.
    Keywords: International Trade, Pairwise Matching, Information Cost, Intermediation,Networks
    JEL: F10 C78 D43 D82 D83 L10
    Date: 2008–02
  4. By: Lindelauf, R.; Borm, P.E.M.; Hamers, H.J.M. (Tilburg University, Center for Economic Research)
    Abstract: Covert organizations are constantly faced with a tradeoff between secrecy and operational efficiency. Lindelauf, Borm and Hamers (2008) developed a theoretical framework to deter- mine optimal homogeneous networks taking the above mentioned considerations explicitly into account. In this paper this framework is put to the test by applying it to the 2002 Jemaah Islamiyah Bali bombing. It is found that most aspects of this covert network can be explained by the theoretical framework. Some interactions however provide a higher risk to the network than others. The theoretical framework on covert networks is extended to accommodate for such heterogeneous interactions. Given a network structure the optimal location of one risky interaction is established. It is shown that the pair of individuals in the organization that should conduct the interaction that presents the highest risk to the organization, is the pair that is the least connected to the remainder of the network. Furthermore, optimal networks given a single risky interaction are approximated and compared. When choosing among a path, star and ring graph it is found that for low order graphs the path graph is best. When increasing the order of graphs under consideration a transition occurs such that the star graph becomes best. It is found that the higher the risk a single interaction presents to the covert network the later this transition from path to star graph occurs.
    Keywords: covert networks;terrorist networks;heterogeneity;game theory;information;secrecy.
    JEL: C50 C78
    Date: 2008
  5. By: Marc Pröpper; Iman van Lelyveld; Ronald Heijmans
    Abstract: We present the application of network theory to the Dutch payment system with specific attention to systemic stability. The network nodes comprise of domestic banks, large international banks and TARGET countries, the links are established by payments between the nodes. Traditional measures (transactions, values) first show payments are relatively well behaved through time and that the system does not contain a group of significant structural net receivers or payers among the participant institutions. Structural circular flows do, however, exist in the system, most prominently a large circular net flow between TARGET countries. Analysis of the properties of prominent network measures over time shows that fast network development takes place in the early phase of network formation of about one hour and slower development afterwards. The payment network is small (in actual nodes and links), compact (in path length and eccentricity) and sparse (in connectivity) for all time periods. In the long run, a mere 12% of the possible number of interbank connections is ever used and banks are on average only 2 steps apart. Relations in the network tend to be reciprocal. Our results also indicate that the network is susceptible to directed attacks. In a final section we show that the recent ‘sub prime' turmoil in credit markets has not materially affected the network structure.
    Keywords: network; topology; interbank; payment; systemic risk; financial stability
    JEL: G1 E5
    Date: 2008–05
  6. By: Daron Acemoglu; Munther A. Dahleh; Ilan Lobel; Asuman Ozdaglar
    Abstract: We study the perfect Bayesian equilibrium of a model of learning over a general social network. Each individual receives a signal about the underlying state of the world, observes the past actions of a stochastically-generated neighborhood of individuals, and chooses one of two possible actions. The stochastic process generating the neighborhoods defines the network topology (social network). The special case where each individual observes all past actions has been widely studied in the literature. We characterize pure-strategy equilibria for arbitrary stochastic and deterministic social networks and characterize the conditions under which there will be asymptotic learning -- that is, the conditions under which, as the social network becomes large, individuals converge (in probability) to taking the right action. We show that when private beliefs are unbounded (meaning that the implied likelihood ratios are unbounded), there will be asymptotic learning as long as there is some minimal amount of "expansion in observations". Our main theorem shows that when the probability that each individual observes some other individual from the recent past converges to one as the social network becomes large, unbounded private beliefs are sufficient to ensure asymptotic learning. This theorem therefore establishes that, with unbounded private beliefs, there will be asymptotic learning an almost all reasonable social networks. We also show that for most network topologies, when private beliefs are bounded, there will not be asymptotic learning. In addition, in contrast to the special case where all past actions are observed, asymptotic learning is possible even with bounded beliefs in certain stochastic network topologies.
    JEL: C72 D83
    Date: 2008–05
  7. By: Monge, Mario; Hartwich, Frank; Halgin, Daniel
    Abstract: "This paper presents results from a study that identified patterns of social interaction among small farmers in three agricultural subsectors in Bolivia—fish culture, peanut production, and quinoa production—and analyzed how social interaction influences farmers' behavior toward the adoption of pro-poor innovations. Twelve microregions were identified, four in each subsector, setting the terrain for an analysis of parts of social networks that deal with the diffusion of specific sets of innovations. Three hundred sixty farmers involved in theses networks as well as 60 change agents and other actors promoting directly or indirectly the diffusion of innovations were interviewed about the interactions they maintain with other agents in the network and the sociodemographic characteristics that influence their adoption behavior. The information derived from this data collection was used to test a wide range of hypotheses on the impact that the embeddedness of farmers in social networks has on the intensity with which they adopt innovations. Evidence provided by the study suggests that persuasion, social influence, and competition are significant influences in the decisions of farmers in poor rural regions in Bolivia to adopt innovations. The results of this study are meant to attract the attention of policymakers and practitioners who are interested in the design and implementation of projects and programs fostering agricultural innovation and who may want to take into account the effects of social interaction and social capital. Meanwhile, scholars of the diffusion of innovations may find evidence to further embrace the complexity and interdependence of social interactions in their models and approaches." from Author's Abstract
    Keywords: Social networks, Agricultural innovation, Change agent, Social capital,
    Date: 2008

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