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on Network Economics |
| By: | Cohen-Cole, Ethan (University of Maryland); Patacchini, Eleonora (University of Roma La Sapienza); Zenou, Yves (Dept. of Economics, Stockholm University) |
| Abstract: | We propose a novel mechanism to facilitate understanding of systemic risk in financial markets. The literature on systemic risk has focused on two mechanisms, common shocks and domino-like sequential default. Our approach is a formal model that provides an intellectual combination of the two by looking at how shocks propagate through a network of interconnected banks. Transmission in our model is not based on default. Instead, we provide a simple microfoundation of banks’ profitability based on classic competition incentives. As competitors lending quantities change, both for closely connected ones and the whole market, banks adjust their own lending decisions as a result, generating a ‘transmission’ of shocks through the system. We provide a unique equilibrium characterization of a static model, and embed this model into a full dynamic model of network formation with n agents. Because we have an explicit characterization of equilibrium behavior, we have a tractable way to bring the model to the data. Indeed, our measures of systemic risk capture the propagation of shocks in a wide variety of contexts; that is, it can explain the pattern of behavior both in good times as well as in crisis. |
| Keywords: | Financial networks; interbank lending; interconnections; network centrality; spatial autoregressive models |
| JEL: | C21 G10 |
| Date: | 2011–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2011_0006&r=net |
| By: | Bernard Fortin; Myra Yazbeck |
| Abstract: | This paper aims at opening the black box of peer effects in adolescent weight gain. Using Add Health data on secondary schools in the U.S., we investigate whether these effects partly flow through the eating habits channel. Adolescents are assumed to interact through a friendship social network. We first propose a social interaction model of fast food consumption using a generalized spatial autoregressive approach. We exploit results by Bramoullé, Djebbari and Fortin (2009) which show that intransitive links within a network (i.e., a friend of one of my friends is not my friend) help identify peer effects. The model is estimated using maximum likelihood and generalized 2SLS strategies. We also estimate a panel dynamic weight gain production function relating an adolescent’s Body Mass Index (BMI) to his current fast food consumption and his lagged BMI level. Results show that there are positive significant peer effects in fast food consumption among adolescents belonging to a same friendship school network. The estimated social multiplier is 1.59. Our results also suggest that, at the network level, an extra day of weekly fast food restaurant visits increases BMI by 2.4%, when peer effects are taken into account. <P>Cet article a pour but d’ouvrir la boîte noire des effets de pairs dans les gains de poids chez les adolescents. À partir des données Add Health sur les écoles secondaires aux États-Unis, nous étudions si ces effets découlent en partie des habitudes alimentaires. On suppose que les adolescents interagissent dans le cadre d’un réseau social d’amitié. Nous proposons une analyse des interactions sociales de consommation de malbouffe à l’aide d’un modèle autorégressif spatial généralisé. Nous exploitons les résultats de Bramoullé, Djebbari et Fortin (2009) qui montrent que les liens intransitifs à l’intérieur d’un réseau (i.e., un ami d’un de mes amis n’est pas mon ami) aide à l’identification des effets de pairs. Le modèle est estimé à partir de méthodes de maximum de vraisemblance et de variables instrumentales généralisées. Nous estimons en outre une fonction dynamique de gain de poids reliant l’indice de masse corporelle de l’adolescent (IMC) à sa consommation courante de malbouffe et à son niveau retardée d’IMC. Nos résultats montrent qu’il existe des effets de pairs positifs et significatifs dans la consommation de malbouffe parmi les adolescents appartenant au même réseau d’amis de l’école. Le multiplicateur social est de 1,59. Nos résultats suggèrent de plus qu’au niveau du réseau social, une journée additionnelle de consommation hebdomadaire dans un restaurant de malbouffe augmente l’IMC de 2,4 %, lorsque les effets de pairs sont pris en compte. |
| Keywords: | Obesity, overweight, peer effects, social interactions, fast food, spatial models., Obésité, embompoint, effets de pair, malbouffe, réseaux sociaux, modèle autorégressif spatial |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2011s-20&r=net |
| By: | Martin Kenney; Bryan Pon |
| Abstract: | Until the introduction of the iPhone, cellular telephony and the Internet were essentially separate. The Internet was a PC-based service, while mobile telephony was conducted on a telephone. Though there were mobile products that provided communication services such as email, web access and other Internet services were either unavailable or inferior to those available on a PC. The “smartphone” cate-gory redefined by Apple meant the convergence of traditional mobile telephony, Internet services, and personal computing. As these sectors merge into a single device, formerly separate industry architec-tures and their constituent firms are being forced into direct competition. We test theories of industry architecture and technological platforms regarding their ability to explain the strategies of key entrants in navigating the transition. We analyze in detail the actions and strategies of four major competitors, including Apple, Google, Microsoft, Nokia, and, more briefly, Research in Motion and HP/Palm, from the framework of technological platform theory. Our analysis suggests that currently some competitors are following traditional platform strategies, but that Google and Apple appear to have adopted strate-gies at odds with platform literature. We examine how the dynamics of this convergence may lead to a reconsideration of certain tenets of platform theory. |
| Keywords: | platforms, industry structure, smart phones, Android, iPhone |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1238&r=net |
| By: | Penelope Hernandez (ERI-CES); Edson Manuel Muñoz Herrera (ERI-CES); Angel Sanchez (University Carlos III) |
| Abstract: | We propose a model of network games with heterogeneity introduced by endowing players with types that generate preferences among their choices. We study two classes of games: strategic complements or substitutes in payoffs. The payoff function depends on the network structure, and we ask how does heterogeneity shape players' decision making, what is its effect on equilibria, conditions of stability, and welfare. Heterogeneity in players' type establishes the existence of thresholds which determine the Nash equilibrium conditions in a network game. Network configurations in equilibrium can be satisfactory if each player chooses the action corresponding to her type or frustrated when at least one player is not. Also, equilibria can be specialized if all players are choosing the same action (only in strategic complements), or hybrid when both actions coexist. A refinement of the Nash equilibria through stochastic mutations of pairs of neighbors limits multiplicity to a subset of Stable Equilibrium Configurations. The absorbing state networks lead, in most cases, to a frustrated hybrid configuration. This class corresponds to the risk dominant equilibrium |
| Keywords: | Heterogeneity, Networks, Nash Equilibrium, Stability |
| JEL: | C72 D85 L14 Z13 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0411&r=net |
| By: | Helsley, Robert (University of California, Berkeley); Zenou, Yves (Stockholm University and Research Institute of Industrial Economics (IFN), Stockholm, Sweden, and GAINS) |
| Abstract: | We examine how interaction choices depend on the interplay of social and physical distance, and show that agents who are more central in the social network, or are located closer to the geographic center of interaction, choose higher levels of interactions in equilibrium. As a result, the level of interactivity in the economy as a whole will rise with the density of links in the social network and with the degree to which agents are clustered in physical space. When agents can choose geographic locations, there is a tendency for those who are more central in the social network to locate closer to the interaction center, leading to a form of endogenous geographic separation based on social distance. Finally, we show that the market equilibrium is not optimal because of social externalities. We determine the value of the subsidy to interactions that could support the first-best allocation as an equilibrium and show that interaction effort and the incentives for clustering are higher under the subsidy program. |
| Keywords: | Social networks; urban-land use; Bonacich centrality |
| JEL: | D85 R14 Z13 |
| Date: | 2011–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2011_0008&r=net |
| By: | Liu, Xiaodong (University of Colorado at Boulder); Patacchini, Eleonora (La Sapienza University of Rome, EIEF and CEPR.); Zenou, Yves (Stockholm University, Research Institute of Industrial Economics (IFN) and GAINS); Lee, Lung-Fei (The Ohio State University) |
| Abstract: | We analyze delinquent networks of adolescents in the United States. We develop a theoretical model showing who the key player is, i.e. the criminal who once removed generates the highest possible reduction in aggregate crime level. We also show that key players are not necessary the most active criminals in a network. We then test our model using data on criminal behaviors of adolescents in the United States (AddHealth data). Compared to other criminals, key players are more likely to be a male, have less educated parents, are less attached to religion and feel socially more excluded. They also feel that adults care less about them, are less attached to their school and have more troubles getting along with the teachers. We also find that, even though some criminals are not very active in criminal activities, they can be key players because they have a crucial position in the network in terms of betweenness centrality. |
| Keywords: | Crime; bonacich centrality; betweenness centrality; network characteristics; crime policies |
| JEL: | A14 D85 K42 Z13 |
| Date: | 2011–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2011_0007&r=net |
| By: | Stephan Schaeffler; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen) |
| Abstract: | Since the events of liberalization of energy markets leading to the introduction of unbundling and incentive regulation for electricity and gas network operators in many countries, the long-lasting discussion between regulation authorities and regulated firms about adequate equity costs has gained in intensity. Heavy criticism has been formulated by the affected network operators, suggesting that the methodology is not adequate, that data sets of companies used for computation of equity returns are not comparable or that other parameters of the formula, such as the market risk premium and the risk-free interest rate, are not appropriate. One aim of this paper consequently is to give an overview of results obtained in the field of empirical research, the focus lying on utilities, network operators and specific industry betas. As such, this paper may serve as a hub to research papers and give numerous sources for practitioners and researchers. Secondly, this paper presents and discusses the most important drivers of systematic risk which is an indispensable groundwork for determining adequate betas. Thirdly, an overview of the handling of equity return by regulation authorities will be provided. Fourthly, a recent data set with more than 20 network operators will be used to compute the required equity return with different methodologies (CAPM, Fama-French-TFM, Ross-APT). This provides evidence that regulatory practice ignores the Fama-French-TFM or the APT, even though these approaches prove to be valid to improve estimation quality. Consequently, this paper supports regulators and practitioners in search for the right approach to use concerning investment decisions and regulatory rule setting. |
| Keywords: | Network operator, cost of capital, asset pricing models, regulation, cost of equity |
| JEL: | G31 G38 L9 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1101&r=net |
| By: | Emilio Calvo (ERI-CES); Esther Gutierrez (University Pais Vasco) |
| Abstract: | A value for games with a coalition structure is introduced, where the rules guiding the cooperation among the members of the same coalition are different from the interaction rules among coalitions. In particular, players inside a coalition exhibit a greater degree of solidarity than they are willing to use with players outside their coalition. The Shapley value [Shapley, 1953] is therefore used to compute the aggregate payoffs of the coalitions, and the Solidarity value [Nowak and Radzik, 1994] to obtain the payoffs of the players inside each coalition. |
| Keywords: | Coalitional value, Shapley value, Owen value, Solidarity value |
| JEL: | C71 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0311&r=net |