nep-net New Economics Papers
on Network Economics
Issue of 2012‒03‒21
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Allocation Rules on Networks By Rahmi Ilkiliç; Çâatay Kayi
  2. Resilience of the Interbank Network to Shocks and Optimal Bail-Out Strategy: Advantages of "Tiered" Banking Systems By Mariya Teteryatnikova
  3. Quality choice and advertising regulation in broadcasting markets By Francisco Martínez-Sánchez; Miguel González-Maestre
  4. Decentralization, Social Networks, and Organizational Learning By Emily Erikson; Sampsa Samila
  5. Being Close to Grow Faster: A Network-Based Empirical Analysis of Economic Globalization By Georg Duernecker; Moritz Meyer; Fernando Vega Redondo
  6. Production Networks in Asia : A Case Study from the Hard Disk Drive Industry By Daisuke Hiratsuka
  7. Whither Capitalism? Financial Externalities and Crisis By Miller, Marcus; Zhang, Lei

  1. By: Rahmi Ilkiliç; Çâatay Kayi
    Abstract: ABSTRACT: When allocating a resource, geographical and infrastructural constraints have to be taken into account. We study the problem of distributing a resource through a network from sources endowed with the resource to citizens with claims. A link between a source and an agent depicts the possibility of a transfer from the source to the agent. Given the supplies at each source, the claims of citizens, and the network, the question is how to allocate the available resources among the citizens. We consider a simple allocation problem that is free of network constraints, where the total amount can be freely distributed. The simple allocation problem is a claims problem where the total amount of claims is greater than what is available. We focus on consistent and resource monotonic rules in claims problems that satisfy equal treatment of equals. We call these rules fairness principles and we extend fairness principles to allocation rules on networks. We require that for each pair of citizens in the network, the extension is robust with respect to the fairness principle. We call this condition pairwise robustness with respect to the fairness principle. We provide an algorithm and show that each fairness principle has a unique extension which is pairwise robust with respect to the fairness principle. We give applications of the algorithm for three fairness principles: egalitarianism, proportionality and equal sacrice.
    Date: 2012–03–11
  2. By: Mariya Teteryatnikova
    Abstract: Systemic risk and the scale of systemic breakdown in the banking system are the key concern for central banks charged with safeguarding overall financial stability. This paper focuses on the risk and potential impact of system-wide defaults in the frequently observed ”tiered” banking system, where relatively few first-tier head institutions are connected with second-tier ”peripheral” banks and are also connected with each other, while the peripheral banks are almost exclusively connected with the head banks. The banking network is constructed from a number of banks which are linked by interbank exposures with a certain predefined probability. In this framework, the tiered structure is represented either by a network with negative correlation in connectivity of neighboring banks, or alternatively, by a network with a scale-free distribution of connectivity across banks. The main finding of the paper highlights the advantages of tiering within the banking system in terms of both the resilience of the banking network to systemic shocks and the extent of necessary government intervention should a crisis evolve. Specifically, the tiered network structure, showing negative correlations in bank connectivity, is found to be less prone to systemic breakdown than other structures, showing either positive or zero correlations. Moreover, in the scale-free tiered system, the resilience of the system to shocks increases as the level of tiering grows. Also, the targeted bail-out policy of the government aimed at rescuing the most connected failing banks in the first place, is expected to be more effective and induce lower costs in a tiered system with high level of tiering.
    JEL: C63 D85 G01 G21
    Date: 2012–03
  3. By: Francisco Martínez-Sánchez (Universidad de Alicante); Miguel González-Maestre (Universitat Autònoma de Barcelona)
    Abstract: We consider the role of the endogenous choice of platform quality in a broadcasting duopoly market where competing media platforms choose also their level of advertising. We compare the equilibrium levels of quality, advertising and welfare under private and mixed duopoly competition. We show that the welfare comparison between the private and mixed duopoly regimes depends, crucially, on the interplay between the net direct effect of advertising on welfare and the degree of substitutability between platforms. We also consider the effects on quality and welfare of recent policies tending to eliminate advertising as a way of financing publicly-owned platforms.
    Keywords: endogenous quality, two-sided markets, broadcasting duopoly, publicly-owned platform, advertising regulation.
    JEL: L11 L33 L82 M37
    Date: 2012–02
  4. By: Emily Erikson; Sampsa Samila
    Abstract: Research on the exploration and exploitation of knowledge in organizations suggests that the autonomy of subsidiaries or units encourages innovation. However, that same autonomy potentially discourages the exploitation of innovations through inter-unit communication – suggesting a tradeoff between innovation, associated with exploration, and communication, associated with exploitation. Analyzing data on the operational decisions of captains in the English East India Company, we find that high unit autonomy encourages the transfer of information via social networks, whereas centralization depresses the use of social networks. Further, the information transferred via social networks does make its way into the formal knowledge base of the firm.
    Date: 2012
  5. By: Georg Duernecker; Moritz Meyer; Fernando Vega Redondo
    Abstract: Globalization features one of the major global trends which shape economic outcomes in developing and developed countries. Standard results from the empirical growth literature suggest that participation in worldwide trade is an important determinant of economic growth. In contrast to previous findings, this paper argues that not only the level of openness matters (trade intensity), but the degree of integration of an economy into the global trade network is even more important for the growth performance of an economy. The new measure of integration captures the network position of an economy and takes into consideration higher order links between economies in the global trade network. First, the theoretical framework of this paper makes use of social network theory to characterize a measure of economic integration. We employ the well-established concept of centrality and construct alternative measures to describe patterns of economic globalization. Second, we make use of a unique data set constructed from the UN Comtrade database and exploit a wide set of bilateral import and export flows to characterize the country’s participation in worldwide trade. Third, the identification strategy takes into account the dynamic panel structure of our data to disentangle the impact of economic integration on economic growth. Our results build on the difference and system generalized method of moments and the limited information maximum likelihood method. We take into consideration possible problems of endogeneity and lagged variables in the dynamic panel framework. The empirical analysis highlights the importance of openness and especially integration to fully understand the economic growth performance in a between and within country perspective. Controlling for the standard set of independent variables in the empirical growth literature and using different robustness checks, we find a significantly positive effect of integration on economic growth.
    Keywords: Economic Globalization; Growth Regressions; Dynamic Panel Estimation; Social Network Theory
    JEL: C33 F43 O40 O43
    Date: 2012
  6. By: Daisuke Hiratsuka (Asian Development Bank Institute (ADBI))
    Abstract: Production networks have been extensively developed in East Asia. Previous studies on production networks used international trade data or input–output tables, but such aggregate data cannot explain how the networks actually operate. With the aim of understanding the features and characteristics of East Asian production networks, this paper examines the procurement system of a HDD assembler operating in Thailand. This micro-level case study found that this particular production network consists mostly of arm’s-length suppliers, who are independent and on an equal footing with the assembler. These arm’s-length suppliers are mostly located in the assembling country, but some are located in neighboring countries. This proximity is necessary to establish good relationships between customer and suppliers and allows problems to be solved as soon as they occur. The arm’s-length suppliers engaged in each country’s leading industries, such as the electronics industry in Malaysia and Singapore and the automobile industry in Thailand, have extended their business to supply the HDD industry. These suppliers have formed an industrial cluster in each country within a two- or three-hour drive area. Each cluster that spans different countries is linked by a well-developed logistic network that employs the just-in-time production method that prevails in East Asia. On a regional level, these separate clusters tend to form international production networks that connect to each other across neighboring countries within a distance that provides a quick response time for problem solving. This study also found that American HDD assemblers outsourced indigenous suppliers in Malaysia and Singapore because American suppliers did not follow the assemblers’ move to the region. However, since Japanese suppliers did follow the Japanese HDD assemblers to the Philippines and Thailand, indigenous suppliers were not outsourced.
    Keywords: Production Networks, Asia, Hard disk drive industry.
    JEL: F14 F15 F23
    Date: 2011–07
  7. By: Miller, Marcus (University of Warwick); Zhang, Lei (University of Warwick)
    Abstract: As with global warming, so with financial crises – externalities have a lot to answer for. We look at three of them. First the financial accelerator due to ‘fire sales’ of collateral assets -- a form of pecuniary externality that leads to liquidity being undervalued. Second the ‘risk- shifting’ behaviour of highly-levered financial institutions who keep the upside of risky investment while passing the downside to others thanks to limited liability. Finally, the network externality where the structure of the financial industry helps propagate shocks around the system unless this is checked by some form of circuit breaker, or ‘ring-fence’. The contrast between crisis-induced Great Recession and its aftermath of slow growth in the West and the rapid - and (so far) sustained - growth in the East suggests that successful economic progress may depend on how well these externalities are managed.
    Keywords: Externalities, financial accelerator, limited liability, risk-shifting, global imbalances, financial networks
    Date: 2012

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