nep-net New Economics Papers
on Network Economics
Issue of 2014‒08‒20
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Governance in Network Industries: Lessons Learnt from New Institutional Economics By Jean-Michel Glachant
  2. The Development of Fixed Broadband Networks By OECD
  3. Economic replicability tests for next-generation access networks By Laure Jaunaux; Marc Lebourges
  4. Network Risk and Key Players: A Structural Analysis of Interbank Liquidity By Edward Denbee; Christian Julliard; Ye Li; Kathy Yuan
  5. Accounting for Peer Effects in Treatment Response By Rokhaya Dieye; Habiba Djebbari; Felipe Barrera-Osorio
  6. Games induced by the partitioning of a graph By Michel Grabisch; Alexandre Skoda
  7. Unintended triadic closure in social networks: The strategic formation of research collaborations between French inventors By Nicolas CARAYOL; Lorenzo CASSI; Pascale ROUX
  8. Global Virtual Water Trade: integrating Structural Decomposition Analysis with Network Theory By Tiziano Distefano; Massimo Riccaboni; Giovanni Marin
  9. Forecast Shocks in Production Networks By Can Tian

  1. By: Jean-Michel Glachant
    Abstract: Institutional economics provide a useful frame to navigate the fuzzy world of governance structures. Of course markets, firms and relational contracting (or Hybrid Forms) are alternative tools which can complement or substitute each other to frame transactions made among economic agents. However, firms are not a single piece of governance structure as they might handle different transactions very differently. Either inside the firm, such as the day-to-day operational workflow, the hazards of R&D discovery and trials, the long term production of skills and knowledge through organized definition and allocation of tasks, the coordination between today’s and tomorrow’s operations e.g. between the various levels of management and the interactions with the stockholders, or outside the firm in the interactions with suppliers, customers bankers and the social or professional communities. Truly, those firms are all conglomerates of several governance sub-structures. So are the markets conglomerates of several governance mechanisms. It is why we are able to think about designing/redesigning the markets we have and to move to get the markets that we would like to have. Knowing all that: how to apply it to the existing Network Industries?
    Keywords: Institutional economics, governance structures, markets, firms, network industries
    Date: 2014–07
  2. By: OECD
    Abstract: This report examines the development of fixed networks and their ability to support the Internet economy. Enhancements to fixed broadband networks remain critical despite the growth in the use of wireless services. In fact, growth in the use of data over wireless networks actually increases demands on fixed networks. Upgrading fixed networks to ultra-fast speeds has the potential to generate significant spillovers; however, the evidence so far is mixed as to whether different types of public intervention are necessary to spur fibre deployment. The report provides an overview of the barriers to upgrading networks as well as the regulatory challenges encountered in spurring the deployment of fixed networks.
    Date: 2014–06–13
  3. By: Laure Jaunaux; Marc Lebourges
    Abstract: This paper discusses the relevant cost standard for the economic replicability test for Next-Generation Access (NGA) networks, described in the Recommendation on Costing and Non-discrimination adopted by the European Commission. According to the Recommendation itself, in order to reconcile investment and competition, wholesale prices should have nonlinear characteristics and be only partly variable with the number of accesses. We demonstrate that a cost standard for the economic replicability test that implies fully fixed and variable cost recovery for the access seeker, including the total wholesale price, would be incompatible with the economics of NGA networks and that such a test would deter NGA investment. Therefore the cost standard for the economic replicability test should include only the variable part of the wholesale prices. However, we underline that during a transition phase, until competitors have secured access to NGA infrastructure, a temporary second test called the “competition migration test” should be added to ensure incumbent NGA retail prices do not foreclose copper-based efficient entrants. The tests we propose surpass the limits of the “ladder of investment” theory by including the “business migration effect” developed by Bourreau et al. (2012).
    Keywords: Margin squeeze test, Regulation, Next-generation access networks
    JEL: L51 L96
    Date: 2014–07
  4. By: Edward Denbee; Christian Julliard; Ye Li; Kathy Yuan
    Abstract: We model banks’ liquidity holding decision as a simultaneous game on an interbank borrowing network. We show that at the Nash equilibrium, the contributions of each bank to the network liquidity level and liquidity risk are distinct functions of its indegree and outdegree Katz-Bonacich centrality measures. A wedge between the planner and the market equilibria arises because individual banks do not internalize the effect of their liquidity choice on other banks’ liquidity benefit and risk exposure. The network can act as an absorbent or a multiplier of individual banks’ shocks. Using a sterling interbank network database from January 2006 to September 2010, we estimate the model in a spatial error framework, and find evidence for a substantial, and time varying, network risk: in the period before the Lehman crisis, the network is cohesive and liquidity holding decisions are complementary and there is a large network liquidity multiplier; during the 2007-08 crisis, the network becomes less clustered and liquidity holding less dependent on the network; after the crisis, during Quantitative Easing, the network liquidity multiplier becomes negative, implying a lower network potential for generating liquidity. The network impulse-response functions indicate that the risk key players during these periods vary, and are not necessarily the largest borrowers.
    Date: 2014
  5. By: Rokhaya Dieye (Université Laval - Department of Economics); Habiba Djebbari (Université Laval - Department of Economics, AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Felipe Barrera-Osorio (Havard Graduate School of Education - Harvard University)
    Abstract: When one's treatment status affects the outcomes of others, experimental data are not sufficient to identify a treatment causal impact. In order to account for peer effects in program response, we use a social network model. We estimate and validate the model on experimental data collected for the evaluation of a scholarship program in Colombia. By design, randomization is at the student-level. Friendship data reveals that treated and untreated students interact together. Besides providing evidence of peer effects in schooling, we find that ignoring peer effects would have led us to overstate the program actual impact.
    Keywords: education; social network; impact evaluation
    Date: 2014–07
  6. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Alexandre Skoda (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: The paper aims at generalizing the notion of restricted game on a communication graph, introduced by Myerson. We consider communication graphs with weighted edges, and we define arbitrary ways of partitioning any subset of a graph, which we call correspondences. A particularly useful way to partition a graph is obtained by computing the strength of the graph. The strength of a graph is a measure introduced in graph theory to evaluate the resistance of networks under attacks, and it provides a natural partition of the graph (called the Gusfield correspondence) into resistant components. We perform a general study of the inheritance of superadditivity and convexity for the restricted game associated with a given correspondence. Our main result is to give for cycle-free graphs necessary and sufficient conditions for the inheritance of convexity of the restricted game associated with the Gusfield correspondence.
    Keywords: Communication networks;Coalition structure;Cooperative game; Strength of a graph
    Date: 2012–08–29
  7. By: Nicolas CARAYOL; Lorenzo CASSI; Pascale ROUX
    Abstract: Most of the empirical and theoretical literature aimed at understanding the behavioral patterns that lead to the formation of social networks argue that such networks are clustered because agents like social closure, since it facilitates cooperation enforcement, for instance, or increases match quality. We argue that, in certain circumstances, network clustering may arise for other reasons, even though agents may actually not like redundancy in connections. We propose a theoretical model of the formation of new research collaboration that we estimate on the longitudinal evolution of the French co-invention network. We show that if this type of social network is closed it is because it correlates with exogenous metrics affecting the costs of direct link formation, not because agents prefer to close triangles per se. This result is obtained thanks to the richness of our dataset, allowing us to control for dyadic fixed-effects and various costs of network formation (geographical distance, technological specialization, and institution boundaries and attributes) omitted in previous studies.
    Keywords: Strategic network formation; Inter-individual collaborations; Closure; Clustering; Patents.
    JEL: D85 C23 O31 Z13
    Date: 2014
  8. By: Tiziano Distefano (IMT Lucca Institute for Advanced Studies); Massimo Riccaboni (IMT Lucca Institute for Advanced Studies); Giovanni Marin (Ceris-CNR)
    Abstract: The consideration of both the direct and the indirect effects of global production and trade is the first step in order to assess the sustainability of resource exploitation, in particular water usage. This paper applies the Global Multi-Regional Input-Output model to quantify the interdependencies of different sectors and to determine the overall water consumption of each country. This procedure allows the measurement of Virtual Water Trade, that is the volume of water embedded in traded goods. This paper introduces further extensions based on network analysis to overcome the limitations of I-O models. To the best of our knowledge, this is the first attempt to build a bridge between two different, but related, methodologies. Firstly, we assess the evolution of the structure of international trade in Virtual Water (VW). Secondly, we present the results from the Structural Decomposition Analysis. Finally, we introduce other measures from Network Theory, in order to integrate the previous results. Community Detection assessment reveals the emergence of regional VW systems composed by a limited set of countries. Thus our study confirms the need of elaborating and implementing transboundary policies for water management, especially in the European Union.
    Keywords: virtual water trade, multi-regional input-output model, network analysis, community detection
    JEL: C67 Q25 F18
    Date: 2014–08
  9. By: Can Tian (University of Pennsylvania)
    Abstract: This paper proposes a dynamic multi-sector production network model in which firms receive news on the future product-specific demand of a representative household. Since production takes time and firms in the production sectors are connected via input-output links, news on the future final demand of an individual product changes firms' forecasts of their future sales, creating economy-wide effects named as forecast shocks. Forecast shocks are transferred upwards through the supplier-customer connections in the network, from the buyer of an input good to the producer. The model explains the asymmetry in the transmission of individual shocks in the network and how shocks to the expectations generate real, persistent effects. The equilibrium is analytically solved and calibrated to the U.S. economy. A preliminary estimation under the assumptions for the shock processes shows the importance of the forecast shocks.
    Date: 2014

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