nep-net New Economics Papers
on Network Economics
Issue of 2011‒04‒09
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Google matrix of the world trade network By Leonardo Ermann; Dima L. Shepelyansky
  2. Identity and Social Distance in Friendship Formation By de Marti, Joan; Zenou, Yves
  3. Co-experience Network Dynamics: Lessons from the Dance Floor. By Massimo Riccaboni; Anna Romiti; Gianna Giudicati
  4. Shaping the formation of university-industry research collaborations: what type of proximity does really matter? By Pablo D'Este; Frederick Guy; Simona Iammarino
  5. Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers? By JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
  6. Us Knows Us in the UK: On Director Networks and CEO Compensation By Renneboog, L.D.R.; Zhao, Y.
  7. The Effects of Vertical Separation and Access Price Regulation on Investment Incentives By Paula Sarmento
  8. The Endogenous Formation of Coalitions to Provide Public Goods: Theory and Experimental Evidence By David M. McEvoy; Todd L. Cherry; John K. Stranlund
  9. Coalition formation and strategic permit trade under the Kyoto Protocol By Godal, Odd; Meland, Frode

  1. By: Leonardo Ermann; Dima L. Shepelyansky
    Abstract: Using the United Nations Commodity Trade Statistics Database [] we construct the Google matrix of the world trade network and analyze its properties for various trade commodities for all countries and all available years from 1962 to 2009. The trade flows on this network are classified with the help of PageRank and CheiRank algorithms developed for the World Wide Web and other large scale directed networks. For the world trade this ranking treats all countries on equal democratic grounds independent of country richness. Still this method puts at the top a group of industrially developed countries for trade in {\it all commodities}. Our study establishes the existence of two solid state like domains of rich and poor countries which remain stable in time, while the majority of countries are shown to be in a gas like phase with strong rank fluctuations. A simple random matrix model provides a good description of statistical distribution of countries in two-dimensional rank plane. The comparison with usual ranking by export and import highlights new features and possibilities of our approach.
    Date: 2011–03
  2. By: de Marti, Joan (Universitat Pompeu Fabra and Barcelona GSE); Zenou, Yves (Dept. of Economics, Stockholm University)
    Abstract: We analyze a network formation model where agents belong to different communities. Both individual benefits and costs depend on direct as well as indirect connections. Benefits of an indirect connection decrease with distance in the network while the cost of a link depends on the type of agents involved. Two individuals from the same community always face a low linking cost and the cost of forming a relationship for two individuals of different communities diminishes with the rate of exposure of each of them to the other community. We derive a number of results with regard to equilibrium networks. In particular, socialization among the same type of agents can be weak even if the within-type link cost is very low and oppositional identity patterns can arise for a wide range of parameters. Our model also suggests that policies aiming at reducing segregation are socially desirable only if they reduce the within-community cost differential by a sufficiently large amount.
    Keywords: networks; identity; homophily; social norms
    JEL: D85 J15
    Date: 2011–04–01
  3. By: Massimo Riccaboni; Anna Romiti; Gianna Giudicati
    Abstract: Experience and socialization are key factors in determining customer commitment and renewal decisions in the service sector. To analyse the combined effect of experience and socialization, in this paper we introduce the concept of co-experience networks. A new methodological approach, originally applied in the field of social ethology, is devised to study reality-mined co-experience networks. By analysing a network of health club members over four years, we find that long-experienced clients have a lower chance to renew their contracts. On the other hand, central members in the co-experience network are stable and tend to renew their memberships. Further, since the members of the same reference group align their levels of commitment, renewal decisions are clustered in a small-world network. These findings contribute to our understanding of social dynamics and localized conformity in customer decision-making that can be used to plan marketing strategies to improve customer retention.
    Date: 2011–01
  4. By: Pablo D'Este; Frederick Guy; Simona Iammarino
    Abstract: Research collaborations between universities and industry (U-I) are considered to be one important channel of potential localised knowledge spillovers. These collaborations favour both intended and unintended flows of knowledge and facilitate learning processes between partners from different organisations. Despite the copious literature on localised knowledge spillovers, still little is known about the factors driving the formation of U-I research collaborations and, in particular, about the role that geographical proximity plays in the establishment of such relationships. Using collaborative research grants between universities and business firms awarded by the UK Engineering and Physical Sciences Research Council (EPSRC), in this paper we disentangle some of the conditions under which different kinds of proximity contribute to the formation of U-I research collaborations, focussing in particular on technological complementarity among the firms participating in such partnerships.
    Keywords: university-industry research collaborations, proximity, geography, industrial clustering, technological complementarity
    JEL: O31 O32 O33 R10
    Date: 2011–03
  5. By: JINJI Naoto; ZHANG Xingyuan; HARUNA Shoji
    Abstract: We examine how the structure of multinational enterprises' (MNEs') activity affects technology spillovers between MNEs and their host economies by using firm-level data of Japanese MNEs and patent citations data. We construct new measures of foreign direct investment (FDI) by exploiting information on sales and purchases of foreign affiliates of MNEs. Pure horizontal (vertical) FDI is defined as FDI with a high share of transactions (i.e., both purchases of inputs and sales of outputs) in the local market (with the home country). Partially horizontal and vertical FDI are also defined. We then estimate the effects of these types of FDI on technology spillovers captured by patent citations. Our findings reveal that when developed economies host Japanese MNEs, pure vertical FDI has significantly positive effects on technology spillovers in both directions. When developing economies host Japanese MNEs, by contrast, no form of FDI significantly facilitates technology spillovers in either direction.
    Date: 2011–03
  6. By: Renneboog, L.D.R.; Zhao, Y. (Tilburg University, Center for Economic Research)
    Abstract: We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996-2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors’ monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the ‘right’ type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms.
    Keywords: Executive remuneration;Professional and social networks;Corporate governance;Managerial Power;Remuneration consultants.
    JEL: G3 J3 L14
    Date: 2011
  7. By: Paula Sarmento (CEF.UP and Faculty of Economics of University of Porto)
    Abstract: We study the impact of vertical separation between an upstream firm and its subsidiary, which competes in the retail market with an independent firm, with the incentive to invest in network upgrade. This question is discussed under two alternative regimes concerning the price of the vital input sold by the upstream firm: cost orientation regulation and absence of access price regulation. We show that the investment incentive decreases with vertical separation under both regimes. However, it is not always true that the investment incentive is higher without regulation.
    Keywords: access price regulation, vertical integration, investment incentives
    JEL: L51 L96
    Date: 2011–04
  8. By: David M. McEvoy (Department of Economics, Appalachian State University); Todd L. Cherry (Department of Economics, Appalachian State University); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: This paper examines the endogenous formation of coalitions that provide public goods in which players implement a minimum participation requirement before deciding whether to join. We demonstrate theoretically that payoff-maximizing players will vote to implement efficient participation requirements and these coalitions will form. However, we also demonstrate that if some players are averse to inequality they can cause inefficient outcomes. Inequality-averse players can limit free riding by implementing larger than efficient coalitions or by blocking efficient coalitions from forming. We test the theory with experimental methods and observe individual behavior and coalition formation consistent with a model of inequality-averse players.
    Keywords: public goods, coalition formation, inequality aversion, participation requirement, experiments
    JEL: C92 H41
    Date: 2011–04
  9. By: Godal, Odd (Göteborg University and University of Bergen); Meland, Frode (University of Bergen, Department of Economics)
    Abstract: This paper discusses coalition formation with side payments in markets for transferable property rights where strategic agents prevail on both sides of the market. Our concern is emissions permit trading under the Kyoto Protocol. While a seller cartel is not profitable, our analysis indicates that coalitions between sellers and buyers pay off. Three stable cartels are found. None involve all agents, yet they all induce overall e¢ ciency. To support a stable coalition, the EU, Japan and Canada may pay together between 0 and 13 billion US dollars per year to Russia. The permit price and society-wide emission reductions are nil.
    Keywords: Emissions trading; Kyoto Protocol; cartel formation; merger profitability.
    JEL: C71 C72 Q58
    Date: 2011–04–01

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