nep-net New Economics Papers
on Network Economics
Issue of 2014‒09‒05
eight papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Global Virtual Water Trade: Integrating Structural Decomposition Analysis with Network Theory By Tiziano Distefano; Giovanni Marin; Massimo Riccaboni
  2. Risk Sharing and Contagion in Networks By Piero Gottardi; Fernando Vega-Redondo; Antonio Cabrales
  3. Online networks and subjective well-being By Sabatini, Fabio; Sarracino, Francesco
  4. Bargaining Power, Energy Security and Networks: an Applied Game Theory Approach By Roberto Roson; Franz Hubert
  5. SNA-Based Innovation Trend Analysis in Software Service Networks By Kibae Kim; Wool-rim Lee; Jorn Altmann
  6. Firm Volatility in Granular Networks By Stijn Van Nieuwerburgh; Hanno Lustig; Bryan Kelly
  7. Communication networks in markets By Edoardo Gallo

  1. By: Tiziano Distefano (IMT Institute for Advanced Studies Lucca, Italy.); Giovanni Marin (CERIS-CNR Milano, Italy; SEEDS Sustainability Environmental Economics Dynamics Studies, Ferrara, Italy.); Massimo Riccaboni (IMT Institute for Advanced Studies Lucca, Italy.)
    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
  2. By: Piero Gottardi (European University Institute); Fernando Vega-Redondo (Bocconi University); Antonio Cabrales (University College London)
    Abstract: We investigate the trade-off between the risk-sharing gains enjoyed by more interconnected firms and the costs resulting from an increased risk exposure. We find that when the shock distribution displays "fat" tails, extreme segmentation into small components is optimal, while minimal segmentation and high density of connections are optimal when the distribution exhibits "thin" tails. For less regular distributions, intermediate degrees of segmentation and sparser connections are optimal. Also, if firms are heterogeneous, optimality requires perfect assortativity in a component. In general, however, a conflict arises between efficiency and pairwise stability, due to a "size externality" not internalized by firms.
    Date: 2014
  3. By: Sabatini, Fabio; Sarracino, Francesco
    Abstract: We argue that the use of online networks may threaten subjective well-being in several ways, due to the inherent attributes of Internet-mediated interaction and through its effects on social trust and sociability. We test our hypotheses on a representative sample of the Italian population. We find a significantly negative correlation between online networking and well-being. This result is partially confirmed after accounting for endogeneity. We explore the direct and indirect effects of the use of social networking sites (SNS) on well-being in a SEM analysis. We find that online networking plays a positive role in subjective well-being through its impact on physical interactions, whereas SNS use is associated with lower social trust. The overall effect of networking on individual welfare is significantly negative.
    Keywords: social participation; online networks; Facebook; social trust; social capital; subjective well-being; hate speech; broadband; digital divide
    JEL: O32 O33 Z13
    Date: 2014–08–25
  4. By: Roberto Roson; Franz Hubert
    Abstract: The realization of international energy distribution networks requires cooperation and the sharing of costs and benefits. Economic incentives, at a country level, to join an international network depend on how net surplus would be distributed, which in turn depends on a variety of factors: position of each country on a specific network, geo-political stability, existence of market distortions and avaiability of alternative energy sources (including renewables). This study is aimed at presenting a game theory methodology that can be applied to real world cases, thereby shedding light on several political economy issues.A methodology will be presented and illustrated with application to a fictious network structure. The method is based on a two-stage process: first, a network optimization model is used to generate payoff values under different coalitions and network structures; a second model is subsequently employed to identify cooperative game solutions, like the Shapley value or the nucleolus. Country level surplus and infrastructure costs can therefore be compared, to assess the economic viability of each project.A numerical model will be realized and discussed. The model output will be sensitive to assumptions on link capacity, supply and demand curves, possible existence of market distortions, alternative energy sources, geo-political stability.
    Keywords: None specifically, although a similar approach has been tested for Eastern Europe., Energy, Infrastructure
    Date: 2013–09–05
  5. By: Kibae Kim (College of Engineering, Seoul National University); Wool-rim Lee (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: Service networks can be considered to be open innovation systems. It has led to research on the structure of these networks, concentrating on the static network topology and its effect on innovation. However, the research misses the changes of network positions over time. In this paper, we examine the changes of nodes¡¯ positions in a software service network. The software service network has been built from empirical data. In this network, a node represents a Software-as-a-Service (SaaS) service and a link denotes a re-use of existing software services through a new service. Our results suggest that: first, software services undergo life cycles in their network positions; second, some software services achieve to hub position in their life cycle while others a core position; and third, an innovation trend appears at service category level not just by a single service. These results imply that innovation studies should not only consider static network positions and topologies but also trends of changing positions within the network.
    Keywords: Open Innovation, Network Centralities, Software-as-a-Service, Composite Services, Service Network, Innovation Trend.
    JEL: D85 L86 O33
    Date: 2014–08
  6. By: Stijn Van Nieuwerburgh (NYU Stern School of Business); Hanno Lustig (Anderson School of Business); Bryan Kelly (University of Chicago)
    Abstract: We propose a network model of firm volatility in which the customers' growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-supplier link depends on the size of the customer firm. Even though all shocks are i.i.d., the network model produces firm-level volatility and size distribution dynamics that are consistent with the data. In the cross section, larger firms and firms with less concentrated customer networks display lower volatility. Over time, the volatilities of all firms co-move strongly, and their common factor is concentration of the economy-wide firm size distribution. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions.
    Date: 2014
  7. By: Edoardo Gallo
    Abstract: This paper proposes a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium outcome which depends crucially on the peripheral (least connected) individuals in each group. The main testable predictions are that groups with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that groups of 6 subjects are assigned to. The results of the experiment lend support to the theoretical predictions: subjects converge to a high equilibrium demand if they are assigned to a network that is dense and/or has low variability in number of connections across members. An extension explores an alternative set-up in which buyers and sellers belong to the same social network: if the network is regular and the agents are homogeneous then the unique equilibrium division is 50-50
    Keywords: network, communication, experiment, noncooperative bargaining, 50-50 division
    JEL: C73 C78 C91 C92 D83
    Date: 2014–08–26
  8. By: Angi Roesch; Harald Schmidbauer; Erhan Uluceviz
    Abstract: The dating of cyclical phenomena in economies, such as business cycles, is at the core of economic policy research. Moreover, policy decisions which are due to affect interacting economies should take into account the economies' connectedness and synchronicity. The cross-country analysis of business cycles is conceptually close to the study of "contagion", focusing on determinants of an economy's susceptibility to, respectively responsibility for, shocks or more general spillover effects in both times of crisis and non-crisis. Our analysis is based on VAR models in stock index return series and forecast error variance decomposition, resulting in return-to-volatility spillovers. This methodology allows to identify a stock market's potential to act as a news disseminator, and we investigate frequency aspects of information transmission in a network of three Western equity markets: Dow Jones Industrial Average (New York), FTSE 100 (London) and Euro Stoxx 50 (euro area). We find evidence that the range of relevant frequencies has become narrower, which may have an explanation in terms of the increasing intensity of information exchange and shrinking holding times of stocks. Furthermore, we find that the U.S.~market is in anti-phase with the European markets, while the European markets are in phase.
    Keywords: USA, UK, euro area, Business cycles, Finance
    Date: 2014–07–03

This nep-net issue is ©2014 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.