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on Network Economics |
| By: | José Pedro Fique (Faculdade de Economia da Universidade do Porto and LIAAD, INESC-Porto) |
| Abstract: | The turmoil in the financial markets that had its roots in the 2007 US subprime crisis prompted government action all over the world motivated by contagion concerns, leaving a heavy bill for the tax payers to pick up. We find that a contributory regime based on contagion risk exposure changes the trade-off between liquidity coinsurance and counterparty risk that motivates the formation of the financial network in the first place, potentially leading to a less connected architecture. Furthermore, if that regime bestows the weight of the levy on both borrower and lender it has the potential to shift the system towards safer grounds. Since we model bank interactions as a network formation game, we are able to provide an account of the changes that come into play with the introduction of tax, which can be a fundamental factor in the design process of the policy function. |
| Keywords: | Financial Network, Regulation, Counterparty Risk, Liquidity Coinsurance |
| JEL: | D85 G18 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:408&r=net |
| By: | Nikola Tarashev; Mathias Drehmann |
| Abstract: | We develop a measure of systemic importance that accounts for the extent to which a bank propagates shocks across the banking system and is vulnerable to propagated shocks. Based on Shapley values, this measure gauges the contribution of interconnected banks to systemic risk, in contrast to other measures proposed in the literature. An empirical implementation of our measure reveals that systemic importance depends materially on the bank's role in the interbank network, both as a borrower and as a lender. We also find substantial differences between alternative measures, which implies that prudential authorities should be careful in choosing the underlying approach. |
| Keywords: | Systemic risk, Shapley values, Interbank positions |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:342&r=net |
| By: | Garratt, Rodney (University of California); Mahadeva, Lavan (Bank of England); Svirydzenka, Katsiaryna (Graduate Institute, Geneva) |
| Abstract: | Systemic risk among the network of international banking groups arises when financial stress threatens to criss-cross many national boundaries and expose imperfect international co-ordination. To assess this risk, we apply an information theoretic map equation due to Martin Rosvall and Carl Bergstrom to partition banking groups from 21 countries into modules. The resulting modular structure reflects the flow of financial stress through the network, combining nodes that are most closely related in terms of the transmission of stress. The modular structure of the international banking network has changed dramatically over the past three decades. In the late 1980s four important financial centres formed one large supercluster that was highly contagious in terms of transmission of stress within its ranks, but less contagious on a global scale. Since then the most influential modules have become significantly smaller and more broadly contagious. The analysis contributes to our understanding as to why defaults in US sub-prime mortgages had such large global implications. |
| Keywords: | Networks; international banking groups; systemic risk; information theory. |
| JEL: | F20 F30 |
| Date: | 2011–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0413&r=net |
| By: | Shylashri Shankar; Raghav Gaiha |
| Abstract: | Governments struggle with the reality that the beneficiaries of anti-poverty programs are powerless to influence policies and stem the possibility of capture of benefits by the nonpoor. Networks – social and political – are supposed to increase the ability of the lesspowerful to access their entitlements. The paper assesses whether socially and politically networked households do in fact have better awareness of the components of the program and of the processes of decision making, and whether such networking makes them more likely to vocalize their dissatisfaction when their entitlements are threatened. India's national rural employment guarantee scheme's (NREG) institutional design (mandating village assemblies to authorize decisions on the projects) makes it a good test case. Our results show that links to social and political networks do significantly increase the awareness of the villagers on the program's components and enhances their ability to seek redress of their grievances. |
| Keywords: | Networks, anti-poverty programs, NREG, India |
| JEL: | C21 C81 D31 D60 L14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pas:asarcc:2011-05&r=net |
| By: | Santiago Moreno-Bromberg; Luca Taschini |
| Abstract: | This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and allowance price are generated endogenously and are inter-dependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value reflects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument, which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1103.2914&r=net |