nep-net New Economics Papers
on Network Economics
Issue of 2013‒07‒15
eleven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Risk-taking in social settings: Group and peer effects By Spiros Bougheas; Jeroen Nieboer; Martin Sefton
  2. Financing investment in the European electricity transmission network: Consequences on long-term sustainability of the TSOs financial structure By Arthur Henriot
  3. Short-term allocation of gas networks in the EU and gas-electricity input foreclosure By Miguel Vazquez; Michelle Hallack
  4. A note on networks collaboration in multi-market oligopolies By Billand, P.; Bravard, C.; Chakrabarti, S.; Sarangi, S.
  5. Enhanced network reconstruction from irreducible local information By Rossana Mastrandrea; Tiziano Squartini; Giorgio Fagiolo; Diego Garlaschelli
  6. Business intelligence and multi-market competition By Billand, P.; Bravard, C.; Chakrabarti, S.; Sarangi, S.
  7. Networks, Commitment, and Competence: Caste in Indian Local Politics By Kaivan Munshi; Mark Rosenzweig
  8. Confirming information flows in networks By Billand, P.; Bravard, C.; Kamphorst, J.; Sarangi, S.
  9. Old Boys’ Network in General Practitioner’s Referral Behavior By Franz Hackl; Michael Hummer; Gerald Pruckner
  10. A degree-distance-based connections model with negative and positive externalities By Philipp Möhlmeier; Agnieszka Rusinowska; Emily Tanimura
  11. Asset Price Dynamics with Heterogeneous Beliefs and Local Network Interactions By Valentyn Panchenko; Sergiy Gerasymchuk; Oleg V. Pavlov

  1. By: Spiros Bougheas (School of Economics, University of Nottingham); Jeroen Nieboer (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We investigate experimentally the effect of consultation (unincentivized advice) on choices under risk in an incentivized investment task. We compare consultation to two benchmark treatments: one with isolated individual choices, and a second with group choice after communication. Our benchmark treatments replicate findings that groups take more risk than individuals in the investment task; content analysis of group discussions reveals that higher risktaking in groups is positively correlated with mentions of expected value. In our consultation treatments, we find evidence of peer effects: decisions within the peer group are significantly correlated. However, average risk-taking after consultation is not significantly different from isolated individual choices. We also find that risk-taking after consultation is not affected by adding a feedback stage in which subjects see the choices of their consultation peers.
    Keywords: experimental economics, choice under risk, advice, social influence, peer effects
    Date: 2013–04
  2. By: Arthur Henriot
    Abstract: This article focuses on the ability of European TSOs to meet the demand for substantial investments in the electricity transmission grid over the next two decades. We employ quantitative analysis to assess the impact of the required capital expenditures under a set of alternative financing strategies. We consider a best-case scenario of full cooperation between the European TSOs. It appears that under current trends in the evolution of transmission tariffs, only half the volumes of investment currently planned could be funded. A highly significant increase in transmission tariffs will be required to ensure the whole-scale investments can be delivered. Finally, alternative strategies can dampen the impact on tariffs but they can only partially substitute for this increase in charges paid by network users.
    Keywords: Investment, Electricity transmission grid, Transmission System Operator
    Date: 2013–04
  3. By: Miguel Vazquez; Michelle Hallack
    Abstract: Strategic interaction between gas and electricity sectors is a major issue in the implementation of competitive energy markets. One relevant aspect of the problem is the potential for input foreclosure between gas and power industries. In this paper, we are concerned with situations where input foreclosure opportunities are associated with the choice of market design. In particular, we study input foreclosure in the case that the short-term capacity allocation mechanism of gas networks raises barriers to cross-border trade. In that situation, one may find gas markets that are isolated only in the short term. We explain players' ability to influence the electricity price using their gas decisions in those isolated markets. We also show that this should be a concern of EU capacity allocation mechanisms, which provide spatial flexibility in the short term to promote liquidity, at the cost of creating barriers to cross-border trade. Therefore, input foreclosure opportunities are additional costs to be taken into account when weighing benefits and drawbacks of European gas market designs.
    Keywords: Market design, Input foreclosure, Gas-power interaction, Network economics
    Date: 2013–06
  4. By: Billand, P.; Bravard, C.; Chakrabarti, S.; Sarangi, S.
    Abstract: In this note, we extend the Goyal and Joshi's model of network of collaboration in oligopoly to multi-market situations. We examine the incentive of firms to form links and the architectures of the resulting equilibrium networks of this setting. We also present some results on efficient networks.
    JEL: C70 L13 L20 D85
    Date: 2013
  5. By: Rossana Mastrandrea; Tiziano Squartini; Giorgio Fagiolo; Diego Garlaschelli
    Abstract: Network topology plays a key role in many phenomena, from the spreading of diseases to that of nancial crises. Whenever the whole structure of a network is unknown, one must resort to reconstruction methods that identify the least biased ensemble of networks consistent with the partial information available. A challenging case is when there is only local (node-specic) information available. For binary networks, the relevant ensemble is one where the degree (number of links) of each node is constrained to its observed value. However, for weighted networks the problem is much more complicated. While the naive approach prescribes to constrain the strengths (total link weights) of all nodes, recent counter-intuitive results suggest that in weighted networks the degrees are often more informative than the strengths, and as `fundamental' as the latter. This implies that the reconstruction of weighted networks would be signicantly enhanced by the specication of both quantities, a computationally hard and bias-prone procedure. Here we solve this problem by introducing an analytical and unbiased maximum-entropy method that works in the shortest possible time and does not require the explicit generation of reconstructed samples. We consider several real-world applications and show that, while the strengths alone give poor results, the additional knowledge of the degrees yields accurately reconstructed networks. Information-theoretic criteria rigorously conrm that the binary information is irreducible to the weighted one. Our results have strong implications for the analysis of motifs and communities and whenever the reconstructed ensemble is required as a null model to detect higher-order patterns.
    Keywords: Network reconstruction; Null models; Complex networks; Maximum entropy ensembles; Configuration model
    Date: 2013–07–10
  6. By: Billand, P.; Bravard, C.; Chakrabarti, S.; Sarangi, S.
    Abstract: We consider a multimarket framework where a set of firms compete on two oligopolistic markets. The cost of production of each firm allows for spillovers accross markets, ensuring that output decisions for both markets have to be made jointly. Prior to competing in these markets, firms can establish links gathering business intelligence about other firms. These links have two effects. First, the quality of the good produced by the firm which forms the link increases. Second, the quality of the good of the firm which receives the link decreases. We characterize the business intelligence equilibrium networks and networks that maximize social welfare under the most interesting scenario of diseconomies of scope. We that due to externalities, the equilibrium networks may be over-connected relative to socially optimal networks creating a role for policy intervention. We also find that in some situations firms may refrain from gathering information, even if it is costlesss. Moreover, even though intelligence gathering leads to increased product quality, there exist situations where it is detrimental to both consumer welfare and social welfare.
    JEL: C70 L13 L20
    Date: 2013
  7. By: Kaivan Munshi; Mark Rosenzweig
    Abstract: This paper widens the scope of the emerging literature on economic networks by assessing the role of caste networks in Indian local politics. We test the hypothesis that these networks can discipline their members to overcome political commitment problems, enabling communities to select their most competent representatives, while at the same time ensuring that they honor the public goods preferences of their constituents. Using detailed data on local public goods at the street level and the characteristics of constituents and their elected representatives at the ward level over multiple terms, and exploiting the random system of reserving local council seats for caste groups, we find that caste discipline results in the election of representatives with superior observed characteristics and the provision of a significantly greater level of public goods. This improvement in political competence occurs without apparently diminishing leaders' responsiveness to the preferences of their constituents, although the constituency is narrowly defined by the sub-caste rather than the electorate as a whole.
    JEL: H11 H4 O12 O43
    Date: 2013–07
  8. By: Billand, P.; Bravard, C.; Kamphorst, J.; Sarangi, S.
    Abstract: Social networks, be it on the internet or in real life, facilitate information flows. We model this by giving agents incentives to link with others and receive information through those links. We consider networks where agents have an incentive to confirm the information they receive from others. Our paper analyzes the social networks that are formed. We first study the existence of Nash equilibria and then characterize the set of strict Nash networks. Next, we characterize the set of strictly efficient networks and discuss the relationship between strictly efficient networks and strict Nash networks. Finally, we check the robustness of our results by allowing for heterogeneity among agents, possibility of bilateral deviations of agents, and decay in network.
    JEL: C72 D85
    Date: 2013
  9. By: Franz Hackl; Michael Hummer; Gerald Pruckner
    Abstract: We analyzed the impact of social networks on general practitioners’ (GPs) referral behavior based on administrative panel data from 2,684,273 referrals to resident specialists made between 1998 and 2007. To construct estimated social networks, we used information on the doctors’ place and time of study and their hospital work history. We found that GPs referred more patients to specialists within their social networks and that patients referred within a social network had fewer follow-up consultations and were healthier as measured by the number of inpatient days. Consequently, referrals within social networks tended to decrease healthcare costs by overcoming information asymmetry with respect to specialists’ abilities. This is supported by evidence suggesting that within a social network, better specialists receive more referrals than worse specialists in the same network.
    Keywords: Referral behavior, general practitioners, information asymmetry, social networks
    JEL: I1 I11
    Date: 2013–07
  10. By: Philipp Möhlmeier (Center for Mathematical Economics, Bielefeld University); Agnieszka Rusinowska (Paris School of Economics - CNRS, Centre d’Economie de la Sorbonne); Emily Tanimura (Université Paris I Panthéon-Sorbonne, Centre d’Economie de la Sorbonne)
    Abstract: We develop a modification of the connections model by Jackson and Wolinsky (1996) that takes into account negative externalities arising from the connectivity of direct and indirect neighbors, thus combining aspects of the connections model and the co-author model. We consider a general functional form for agents’ utility that incorporates both the effects of distance and of neighbors’ degree. Consequently, we introduce a framework that can be seen as a degree-distance-based connections model with both negative and positive externalities. Our analysis shows how the introduction of negative externalities modifies certain results about stability and efficiency compared to the original connections model. In particular, we see the emergence of new stable structures, such as a star with links between peripheral nodes. We also identify structures, for example, certain disconnected networks, that are efficient in our model but which could not be efficient in the original connections model. While our results are proved for the general utility function, some of them are illustrated by using a specific functional form of the degree-distance-based utility.
    Keywords: connections model, degree, distance, negative externalities, positive externalities, pairwise stability, efficiency
    JEL: D85 C70
    Date: 2013–05
  11. By: Valentyn Panchenko (School of Economics, the University of New South Wales); Sergiy Gerasymchuk (ING Group); Oleg V. Pavlov (Department of Social Science and Policy Studies, Worcester Polytechnic Institute)
    Abstract: In this paper we investigate the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information is available to the agents only locally through their own experience and the experience of other agents directly connected to them. We model the communications with four commonly considered network topologies: a fully connected network, a regular lattice, a small world, and a random graph. The results show that the network topologies influences asset price dynamics in terms of the regions of stability, amplitudes of fluctuations and statistical properties.
    Keywords: asset pricing, local interactions, networks, random graph, small world, heterogeneous beliefs, price dynamics
    JEL: C45 C62 C63 D84 G12
    Date: 2013–06

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