nep-net New Economics Papers
on Network Economics
Issue of 2014‒09‒29
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Friendship Between Banks: An Application of an Actor-Oriented Model of Network Formation on Interbank Credit Relations By Karl Finger; Thomas Lux
  2. The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks By Banerjee, Simanti; de Vries, Frans P.; Hanley, Nick; van Soest, Daan
  3. The World Trade Web: A Multiple-Network Perspective By Paolo Sgrignoli
  4. The Determinants and Consequences of Friendship Composition By Jason Fletcher; Stephen Ross; Yuxiu Zhang;
  5. Continuous Homophily and Clustering in Random Networks By Florian Gauer; Jakob Landwehr

  1. By: Karl Finger (Institute for Quantitative Business and Economic Research); Thomas Lux (Department of Economics, University Jaume I)
    Abstract: This paper investigates the driving forces behind banks’ link formation in the interbank market by applying the stochastic actor oriented model (SAOM) developed in sociology. Our data consists of quarterly networks constructed from the transactions on an electronic platform (e-MID) over the period from 2001 to2010. Estimating the model for the time before and after the global financial crisis (GFC), shows relatively similar behavior over the complete period. We find that past trades are a significant predictor of future credit relations which indicates a strong role for the formation of lasting relationships between banks. We also find strong importance of size-related characteristics, but little influence of past interest rates. The major changes found for the period after the onset of the financial crisis are that: (1) large banks and those identified as `core ´ intermediaries became even more popular and (2) indirect counterparty risk appears to be more of a concern as indicated by a higher tendency to avoid indirect exposure via clustering effects.
    Keywords: interbank market, network formation, financial crisis
    JEL: G21 G1 C35
    Date: 2014–10
  2. By: Banerjee, Simanti; de Vries, Frans P.; Hanley, Nick; van Soest, Daan
    Abstract: The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network environment where the information available to subjects varies. The AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors’ actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors’ action only. However, the extra information can only delay – and not prevent – the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.
    Keywords: Agglomeration bonus, agri-environment schemes, biodiversity conservation, ecosystem services, information spillovers, Payments for Ecosystem Services, spatial coordination,
    Date: 2013
  3. By: Paolo Sgrignoli
    Abstract: International Trade (IT) plays a fundamental role in today's economy: by connecting world countries production and consumption processes, it radically contributes in shaping their economy and development path. Although its evolving structure and determinants have been widely analyzed in the literature, much less has been done to understand its interplay with other complex phenomena. The aim of this work is, precisely in this direction, to study the relations of IT with International Migration (IM) and Foreign Direct Investments (FDI). In both cases the procedure used is to first approach the problem in a multiple-networks perspective and than deepen the analysis by using ad hoc econometrics techniques. With respect to IM, a general positive correlation with IT is highlighted and product categories for which this effect is stronger are identified and cross-checked with previous classifications. Next, employing spatial econometric techniques and proposing a new way to define country neighbors based on the most intense IM flows, direct/indirect network effects are studied and a stronger competitive effect of third country migrants is identified for a specific product class. In the case of FDI, first correlations between the two networks are identified, highlighting how they can be mostly explained by countries economic/demographic size and geographical distance. Then, using the Heckman selection model with a gravity equation, (non-linear) components arising from distance, position in the Global Supply Chain and presence of Regional Trade Agreements are studied. Finally, it is shown how IT and FDI correlation changes with sectors: they are complements in manufacturing, but substitutes in services.
    Date: 2014–09
  4. By: Jason Fletcher (University of Wisconsin); Stephen Ross; Yuxiu Zhang;
    Abstract: This paper examines the demographic pattern of friendship links among youth and the impact of those patterns on own educational outcomes using the friendship network data in the Add Health. We develop and estimate a reduced form matching model to predict friendship link formation and identify the parameters based on across-cohort, within school variation in the "supply" of potential friends. We find novel evidence showing that small increases in the share of students with college educated mothers raises the likelihood of friendship links among students with high maternal education, and that small increases in the share of minority students increases the level of racial homophily in friendship patterns. We then use the predicted friendship links from the matching model in an instrumental variable analysis, and find positive effects of friends' high socioeconomic status, as measured by parental education, on own GPA outcomes among girls. The GPA effects are likely driven by science and English grades, and through non-cognitive factors.
    Keywords: Friendship Formation; Grades; Cohort Study; Peer Effects; Non-Cognitive Effects
    JEL: I21 J13 D85
    Date: 2014–09
  5. By: Florian Gauer (Center for Mathematical Economics, Bielefeld University); Jakob Landwehr (Center for Mathematical Economics, Bielefeld University)
    Abstract: We propose a random network model incorporating heterogeneity of agents and a continuous notion of homophily. Unlike the vast majority of the corresponding economic literature, we capture homophily in terms of similarity rather than equality of agents. We show that if links between similar agents are indeed more likely, our homophilous random network model exhibits clustering. Moreover, simulations indicate that the well-known small-world phenomenon is preserved even at high homophily levels. As a possible application we provide a stylized labor market model, where a firm can hire a worker via the social network.
    Keywords: Random Graphs, Homophily, Clustering, Small-World Phenomenon, Network Formation, Labor Market Search
    JEL: D85 J64 Z13
    Date: 2014–07

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