nep-net New Economics Papers
on Network Economics
Issue of 2011‒10‒15
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Network Interconnectivity with Regulation and Competition By Jolian McHardy; Michael Reynolds; Stephen Trotter
  2. Networks and Transaction Costs By Henning, Christian H.C.A.; Henningsen, Geraldine; Henningsen, Arne
  3. Generalized reduced-form auctions: a network-flow approach By Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
  4. On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms By Francis X. Diebold; Kamil Yýlmaz
  5. Measuring the Influence of Information Networks on Transaction Costs Using a Non-parametric Regression Technique By Henningsen, Geraldine; Henningsen, Arne; Henning, Christian H.C.A.

  1. By: Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter
    Abstract: A simple theoretical network model is introduced to investigate the problem of network interconnection. Prices, profits and welfare are compared under welfare maximisation, network monopoly and network monopoly with competition over one part of the network. Given that inducing actual competition may bring disbenefits such as cost duplication and co-ordination costs, we also explore the possibility of a regulator using the threat of entry on a section of the monopoly network in order to bring about the socially preferred level of interconnectivity. We show that there are feasible parameter values for which such a threat is plausible.
    Keywords: Network interconnectivity, monopoly, competition, regulation
    JEL: L14 L33 L50
    Date: 2011–10
  2. By: Henning, Christian H.C.A.; Henningsen, Geraldine; Henningsen, Arne
    Abstract: Based on the well-known fact that social networks can provide effective mechanisms that help to increase the trust level between two trade partners, we apply a simple game-theoretical framework to derive transaction costs as a high risk of opportunistic behavior in a repeated trade relation determined by the density and size of trading networks. In the empirical part of the paper we apply a two stage procedure to estimate the impact of social network structures on farmâs transaction costs observed for different input and output markets. At a first stage we estimate a multiple input-multiple output stochastic Ray production function to generate relative shadow prices of three inputs and two outputs traded by farms. At a second stage a structural equation system is derived from the first order conditions of farmâs profit maximization to estimate simultaneously the of commodity specific transaction cost functions for all traded farm inputs and outputs. Estimation results based on a sample of 315 Polish farms imply a significant influence of social network structures on farmâs transaction costs. Moreover, estimated transaction costs correspond to a reasonable amount of farm specific shadow prices.
    Keywords: Resource /Energy Economics and Policy,
    Date: 2011
  3. By: Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
    Abstract: We develop a network-flow approach for characterizing interim-allocation rules that can be implemented by ex post allocations. The network method can be used to characterize feasible interim allocations in general multi-unit auctions where agents face hierarchical capacity constraints. We apply the method to solve for an optimal multi-object auction mechanism when bidders are constrained in their capacities and budgets.
    Keywords: Reduced-form auctions, network-flow approach, Gale’s demand theorem, hierarchy of capacity constraints
    JEL: D44
    Date: 2011–09
  4. By: Francis X. Diebold (University of Pennsylvania and NBER); Kamil Yýlmaz (Koc University)
    Abstract: We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately-related to key measures of connectedness used in the network literature. Building on these insights, we track both average and daily time-varying connectedness of major U.S. financial institutions’ stock return volatilities in recent years, including during the financial crisis of 2007-2008.
    Keywords: Risk measurement, risk management, portfolio allocation, market risk, credit risk, systemic risk, asset markets, degree distribution
    JEL: C3 G2
    Date: 2011–10
  5. By: Henningsen, Geraldine; Henningsen, Arne; Henning, Christian H.C.A.
    Abstract: All business transactions as well as achieving innovations take up resources, subsumed under the concept of transaction costs (TAC). One of the major factors in TAC theory is information. Information networks can catalyse the interpersonal information exchange and hence, increase the access to nonpublic information. Our analysis shows that information networks have an impact on the level of TAC. Many resources that are sacrificed for TAC are inputs that also enter the technical production process. As most production data do not separate between these two usages of inputs, high transaction costs are unveiled by reduced productivity. A cross-validated local linear non-parametric regression shows that good information networks increase the productivity of farms. A bootstrapping procedure confirms that this result is statistically significant.
    Keywords: Resource /Energy Economics and Policy,
    Date: 2011

This nep-net issue is ©2011 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.