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on Network Economics |
| By: | Böhme, Enrico |
| Abstract: | The present paper provides a descriptive analysis of the second-degree price discrimination problem on a monopolistic two-sided market. By imposing a simple two-sided framework with two distinct types of agents on one of its market sides, it will be shown that under incomplete information, the extent of platform access for high-demand agents is strictly reduced below the benchmark level (complete information). In addition, the paper’s findings imply that it is feasible in the optimum to charge higher payments from low-demand agents if the extent of interaction with agents from the opposite market side is assumed to be bundle-specific. |
| Keywords: | two-sided markets; second-degree price discrimination; monopoly |
| JEL: | D82 L12 D42 L15 |
| Date: | 2012–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40951&r=net |
| By: | Nicola Borri (LUISS Guido Carli University, Department of Economics and Finance and CASMEF); Marianna Caccavaio (LUISS Guido Carli University, Department of Economics and Finance and CASMEF); Giorgio Di Giorgio (LUISS Guido Carli University, Department of Economics and Finance and CASMEF); Alberto Maria Sorrentino (University of Rome Tor Vergata and CASMEF) |
| Abstract: | Systemic risk is the risk of a collapse of the entire financial system, typically triggered by the default of one, or more, large and interconnected financial institutions. In this paper we estimate the systemic risk contribution of each financial institution in a large sample of European banks. We follow a recent methodology first proposed by Adrian and Brunnermeier (2011) based on the CoVaR and find that size is a predictor of a bank contribution to systemic risk, but it is not the only one. Leverage is important as well. Also, banks that have their headquarters in countries with a more concentrated banking system tend to contribute more to European wide systemic risk, even after controlling for their size. Therefore, any financial regulation designed only to curb banksÕ size would not completely eliminate systemic risk. On average, balance sheet variables are very weak predictors of banksÕ contribution to systemic risk, if compared to market based variables. Accounting rules provide enough degrees of freedom to make balance sheet less informative than market prices. As a result, measures of risk based on higher frequency market prices are more likely to anticipate systemic risk. |
| Keywords: | Systemic Risk, SIFIs, European Banking System, CoVaR. |
| JEL: | G01 G18 G21 G32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lui:casmef:1211&r=net |
| By: | Claudio J. Tessone; Antonios Garas; Beniamino Guerra; Frank Schweitzer |
| Abstract: | External or internal shocks may lead to the collapse of a system consisting of many agents. If the shock hits only one agent initially and causes it to fail, this can induce a cascade of failures among neighoring agents. Several critical constellations determine whether this cascade remains finite or reaches the size of the system, i.e. leads to systemic risk. We investigate the critical parameters for such cascades in a simple model, where agents are characterized by an individual threshold \theta_i determining their capacity to handle a load \alpha\theta_i with 1-\alpha being their safety margin. If agents fail, they redistribute their load equally to K neighboring agents in a regular network. For three different threshold distributions P(\theta), we derive analytical results for the size of the cascade, X(t), which is regarded as a measure of systemic risk, and the time when it stops. We focus on two different regimes, (i) EEE, an external extreme event where the size of the shock is of the order of the total capacity of the network, and (ii) RIE, a random internal event where the size of the shock is of the order of the capacity of an agent. We find that even for large extreme events that exceed the capacity of the network finite cascades are still possible, if a power-law threshold distribution is assumed. On the other hand, even small random fluctuations may lead to full cascades if critical conditions are met. Most importantly, we demonstrate that the size of the "big" shock is not the problem, as the systemic risk only varies slightly for changes of 10 to 50 percent of the external shock. Systemic risk depends much more on ingredients such as the network topology, the safety margin and the threshold distribution, which gives hints on how to reduce systemic risk. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1209.0959&r=net |
| By: | Soramäki, Kimmo; Cook, Samantha |
| Abstract: | The ability to accurately estimate the extent to which the failure of a bank disrupts the financial system is very valuable for regulators of the financial system. One important part of the financial system is the interbank payment system. This paper develops a robust measure, SinkRank, that accurately predicts the magnitude of disruption caused by the failure of a bank in a payment system and identifies banks most affected by the failure. SinkRank is based on absorbing Markov chains, which are well-suited to model liquidity dynamics in payment systems. Because actual bank failures are rare and the data is not generally publicly available, the authors test the metric by simulating payment networks and inducing failures in them. The authors use two metrics to evaluate the magnitude of the disruption: the duration of delays in the system (Congestion) aggregated over all banks and the average reduction in available funds of the other banks due to the failing bank (Liquidity dislocation). The authors test SinkRank on Barabasi-Albert types of scale-free networks modeled on the Fedwire system and find that the failing bank's SinkRank is highly correlated with the resulting disruption in the system overall; moreover, the SinkRank technology can identify which individual banks would be most disrupted by a given failure. -- |
| Keywords: | Systemic risk,interbank payment system,liquidity,Markov chains,simulation |
| JEL: | C63 E58 G28 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201243&r=net |
| By: | Matias Kalm |
| Abstract: | Recent developments in the field of network research have led to a growing interest in interorganisational relationships among social science scholars. One of the most important research areas is related to entrepreneurship research and how relationship networks affect firm performance. However, the existing literature focuses mostly on qualitative case studies and quantitative studies that analyse mergers and acquisitions or patent types of data. By analysing connection and causality between activity in co-operational relationships and firm growth, this study seeks to empirically address the following research question : ‘How does activity in network relationships influence the growth and internationalisation of technology-based firms in emerging technology areas?’ Furthermore, the connection and causality between activity in co-operational relationships and the internationalisation rates of firms are also analysed. This analysis is based on a data set and interviews with 53 small and medium-sized firms. Both a descriptive analysis and regression methods are used to analyse the connection between activity in co-operational relationships and firm growth or internationalisation. Firm growth is measured with both revenue and the employment growth rate. In addition, the activity in in the co-operational relationships is divided into two components : increasing versus consistently high activity with network actors. To address possible causality issues, this research employs activity measures that are based on the importance of the relationships rather than simply the number of relationships. The results show that increasing activity with network actors is positively connected with firm growth as measured in both revenue and employment growth. Furthermore, the results partially support the hypothesis that consistently high activity is positively connected to firm growth. Finally, the results suggest that growth firms positively benefit from increased relationship activity with both current and prospective actors in diverse relationship networks. Moreover, the single most negative result is the relatively low impact of relationship activities on public-sector actors and networks. |
| Keywords: | interorganisational relationships, firm growth, internationalisation, networks |
| Date: | 2012–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1278&r=net |
| By: | Serafín Martínez-Jaramillo; Biliana Alexandrova-Kabadjova; Bernardo Bravo-Benítez; Juan Pablo Solórzano-Margain |
| Abstract: | With the purpose of measuring and monitoring systemic risk, some topological properties of the interbank exposures and the payments system networks are studied. We propose non-topological measures which are useful to describe the individual behavior of banks in both networks. The evolution of such networks is also studied and some important conclusions from the systemic risks perspective are drawn. A unified measure of interconnectedness is also created. The main findings of this study are: the payments system network is strongly connected in contrast to the interbank exposures network; the type of exposures and payment size reveal different roles played by banks; behavior of banks in the exposures network changed considerably after Lehmans failure; interconnectedness of a bank, estimated by the unified measure, is not necessarily related with its assets size. |
| Keywords: | Systemic risk, financial networks, payment systems. |
| JEL: | C01 C02 C44 C63 G21 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2012-07&r=net |
| By: | Nikolaus Hautsch; Julia Schaumburg; Melanie Schienle; |
| Abstract: | We propose the realized systemic risk beta as a measure for financial companies’ contribution to systemic risk given network interdependence between firms’ tail risk exposures. Conditional on statistically pre-identified network spillover effects and market and balance sheet information, we define the realized systemic risk beta as the total time-varying marginal effect of a firm’s Value-at-risk (VaR) on the system’s VaR. Suitable statistical inference reveals a multitude of relevant risk spillover channels and determines companies’ systemic importance in the U.S. financial system. Our approach can be used to monitor companies’ systemic importance allowing for a transparent macroprudential regulation. |
| Keywords: | Systemic risk contribution, systemic risk network, Value at Risk, network topology, two-step quantile regression, time-varying parameters |
| JEL: | G01 G18 G32 G38 C21 C51 C63 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2012-053&r=net |
| By: | Marco Pelliccia (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | This paper studies the impact of a probabilistic risk-sharing network structure on the optimal portfolio composition. We show that, even assuming identical agents, we are able to differentiate their optimal risk-choice once we assume the link-structure defining their relationship probabilistic. In particular, the final agent's portfolio composition is function of his location in the network. If we assume positive asset-correlation coefficients, the relative location of a player in the graph influences his risk-behaviour as much as those of his direct and indirect partners in a not-straightforward way. We analyse also two potential "centrality measures" able to select the key-player in the risk-sharing network. The findings may help to select the "central" agent in a risk-sharing community and to forecast the risk-exposure of the players. Finally, this paper may explain natural differences between identical rational agents' choices emerging in a probabilistic network setup. |
| Keywords: | informal insurance, risk-sharing, network |
| JEL: | D85 D81 O17 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1214&r=net |
| By: | Klumpp, Tilman (University of Alberta, Department of Economics) |
| Abstract: | This paper provides an overview of internet file sharing networks and explores the relationship between technological, economic, and legal aspects of file sharing. I chronicle the evolution of content sharing technology since the 1990s, and examine the role of network architecture for a copyright holder’s choice of enforcement strategy as well as users’ responses to enforcement tactics. Some conjectures for possible future enforcement approaches are also derived. The target audience of this survey consists of economists and legal scholars interested in intellectual property rights and internet file sharing. |
| Keywords: | file sharing; peer-to-peer networks; network architecture; intellectual property rights; copyright enforcement |
| JEL: | D85 K11 K42 L82 O33 O34 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2012_019&r=net |
| By: | Vivi Alatas; Abhijit Banerjee; Arun G. Chandrasekhar; Rema Hanna; Benjamin A. Olken |
| Abstract: | We use a unique data-set from Indonesia on what individuals know about the income distribution in their village to test theories such as Jackson and Rogers (2007) that link information aggregation in networks to the structure of the network. The observed patterns are consistent with a basic diffusion model: more central individuals are better informed and individuals are able to better evaluate the poverty status of those to whom they are more socially proximate. To understand what the theory predicts for cross-village patterns, we estimate a simple diffusion model using within-village variation, simulate network-level diffusion under this model for the over 600 different networks in our data, and use this simulated data to gauge what the simple diffusion model predicts for the cross-village relationship between information diffusion and network characteristics (e.g. clustering, density). The coefficients in these simulated regressions are generally consistent with relationships suggested in previous theoretical work, even though in our setting formal analytical predictions have not been derived. We then show that the qualitative predictions from the simulated model largely match the actual data in the sense that we obtain similar results both when the dependent variable is an empirical measure of the accuracy of a village's aggregate information and when it is the simulation outcome. Finally, we consider a real-world application to community based targeting, where villagers chose which households should receive an anti-poverty program, and show that networks with better diffusive properties (as predicted by our model) differentially benefit from community based targeting policies. |
| JEL: | D83 D85 H23 O12 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18351&r=net |
| By: | Bargigli, Leonardo; Gallegati, Mauro |
| Abstract: | In this paper the authors focus on credit connections as a potential source of systemic risk. In particular, they seek to answer the following question: how do we find densely connected subsets of nodes within a credit network? The question is relevant for policy, since these subsets are likely to channel any shock affecting the network. As it turns out, a reliable answer can be obtained with the aid of complex network theory. In particular, the authors show how it is possible to take advantage of the community detection network literature. The proposed answer entails two subsequent steps. Firstly, the authors need to verify the hypothesis that the network under study truly has communities. Secondly, they need to devise a reliable algorithm to find those communities. In order to be sure that a given algorithm works, they need to test it over a sample of random benchmark networks with known communities. To overcome the limitation of existing benchmarks, the authors introduce a new model and test alternative algorithms, obtaining very good results with an adapted spectral decomposition method. To illustrate this method they provide a community description of the Japanese bank-firm credit network, getting evidence of a strengthening of communities over time and finding support for the well-known Japanese main bank system. Thus, the authors find comfort both from simulations and from real data on the possibility to apply community detection methods to credit markets. They believe that this method can fruitfully complement the study of contagious defaults, since the likelihood of intracommunity default contagion is expected to be high. -- |
| Keywords: | Credit networks,communities,contagion,systemic risk |
| JEL: | C49 C63 D85 E51 G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201241&r=net |
| By: | Simon Gachter, Daniele Nosenzo and Martin Sefon (School of Economics, University of Nottingham); Daniele Nosenzo (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham) |
| Abstract: | We compare social preference and social norm based explanations for peer effects in a three-person gift-exchange game experiment. In the experiment a principal pays a wage to each of two agents, who then make effort choices sequentially. In our baseline treatment we observe that the second agent's effort is influenced by the effort choice of the first agent, even though there are no material spillovers between agents. This peer effect is predicted by a model of distributional social preferences (Fehr-Schmidt, 1999). As we show from a norms-elicitation experiment, it is also consistent with social norms compliance. A conditional logit investigation of the explanatory power of payoff inequality and elicited norms finds that the second agent's effort can be best explained by the social preferences model. In further treatments with modified games we find that the presence/strength of peer effects changes as predicted by the social preferences model. As with the baseline treatment, a conditional logit analysis favors an explanation based on social preferences, rather than social norms following for these treatments. Our results suggest that, in our context, the social preferences model provides a parsimonious explanation for the observed peer effect. |
| Keywords: | peer effects, social influence, gift-exchange, experiment, social preferences, inequity aversion, measuring social norms. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2012-01&r=net |
| By: | William Milberg; Deborah Winkler |
| Abstract: | Abstract The massive globalization of production led by large firms in industrialized countries, combined with the policy shift in developing countries toward export-oriented growth, has meant that economic development has increasingly become synonymous with “economic upgrading” within global production networks (GPNs), that is, moving into higher productivity and higher value-added aspects of production and export. There is much research on economic upgrading in global production networks, connecting economic growth and economic upgrading to international trade performance. There has been less analysis of what such upgrading means for living standards, including wages, work conditions, economic rights, gender equality and economic security. In this paper, we refer to improvements in these aspects of economic and social life as “social upgrading”. This paper reviews the ways in which economic and social upgrading in GPNs are measured. In this paper we focus mainly on developing countries. In the process we also scrutinize the theoretical connection between these two dimensions of upgrading within GPNs. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bwp:bwppap:ctg-2010-04&r=net |