nep-net New Economics Papers
on Network Economics
Issue of 2013‒03‒30
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Markets, Bargaining, and Networks with Heterogeneous Agents By Arnold Polanski; Fernando Vega-Redondo
  2. Social networks and wages in Senegal’s formal sector. By Berardi, N.
  3. ARCO1: An Application of Belief Networks to the Oil Market By Bruce Abramson

  1. By: Arnold Polanski (University of East Anglia); Fernando Vega-Redondo (European University Institute)
    Abstract: The paper proposes an intertemporal model of bargaining among heterogeneous buyers and sellers placed on a bipartite network. First, it characterizes conditions on the network under which its trading restrictions are inessential and the outcome is arbitrage-free. Instead, when the system is segmented in different trading components, we show how these come about and how prices are determined in each of them. Second, we turn to the issue of network endogeneity, focusing on those networks that are Pairwise Stable. Such networks are shown to always exist and be arbitrage-free. In the latter respect, therefore, they satisfy one of the key properties displayed by frictionless markets. We identify, however, a sharp contrast regarding another key feature: Pairwise-Stable networks are generically inefficient if the matching process is genuinely decentralized. This uncovers a fundamental incompatibility between individual incentives and social welfare in endogenous trading networks. We explain that such incompatibility is not only due to buyer/seller heterogeneity but is also caused by the incentives underlying network formation in a trading context.
    Date: 2013–03
  2. By: Berardi, N.
    Abstract: We develop a theoretical framework that considers the role played by moral hazard and the diversity of networks and cultures in the choice of hiring channel. In favoritism contexts social networks, and particularly strong ties, are adopted as hiring channels for unskilled jobs and result in wage penalties, while otherwise the opposite happens. We estimate an endogenous switching model for the case of Senegal's manufacturing formal sector and find, consistently with our theoretical predictions in case of favoritism, that informal hiring channels are preferred to fill unskilled vacancies and are associated with a wage penalty, especially when ties are stronger.
    Keywords: Social networks, Hiring channel, Wage differential.
    JEL: O12 J31
    Date: 2013
  3. By: Bruce Abramson
    Abstract: Belief networks are a new, potentially important, class of knowledge-based models. ARCO1, currently under development at the Atlantic Richfield Company (ARCO) and the University of Southern California (USC), is the most advanced reported implementation of these models in a financial forecasting setting. ARCO1's underlying belief network models the variables believed to have an impact on the crude oil market. A pictorial market model-developed on a MAC II- facilitates consensus among the members of the forecasting team. The system forecasts crude oil prices via Monte Carlo analyses of the network. Several different models of the oil market have been developed; the system's ability to be updated quickly highlights its flexibility.
    Date: 2013–03

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