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on Network Economics |
| By: | Carlos León; Ron J. Berndsen; Luc Renneboog |
| Abstract: | An interacting network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives an accurate picture of a financial system’s true connective architecture. We examine and compare the main properties of Colombian multiplex and interacting financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which augments financial instability because the network then fails to isolate feedbacks and limit cascades while it retains its robust-yet-fragile features. Moreover, our analysis highlights the relevance of infrastructure-related systemic risk, corresponding to the effects caused by the improper functioning of FMIs or by FMIs acting as conduits for contagion. Classification JEL: D85, D53, G20, L14. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:848&r=net |
| By: | Craig, Ben R. (Federal Reserve Bank of Cleveland); Koetter, Michael (Frankfort School of Financial Management); Kruger, Ulrich (Deutsche Bundesbank) |
| Abstract: | We provide empirical evidence on the relevance of systemic risk through the interbank lending channel. We adapt a spatial probit model that allows for correlated error terms in the cross-sectional variation that depend on the measured network connections of the banks. The latter are in our application observed interbank exposures among German bank holding companies during 2001 and 2006. The results clearly indicate significant spillover effects between banks’ probabilities of distress and the financial profiles of connected peers. Better capitalized and managed connections reduce the banks own risk. Higher network centrality reduces the probability of distress, supporting the notion that more complete networks tend to be more stable. Finally, spatial autocorrelation is significant and negative. This last result may indicate too-many-to-fail mechanics such that bank distress is less likely if many peers already experienced distress. |
| Keywords: | Spatial Autoregression; interbank connections; bank risk |
| JEL: | E31 G21 |
| Date: | 2014–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1418&r=net |
| By: | Junjie Zhou (School of International Business Administration, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China); Ying-Ju Chen (School of Business and Management & School of Engineering, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong) |
| Abstract: | In this paper, we examine how a seller sells a product/service with a positive consumption externality, and customers are uncertain about the product's/service's value. Because early adopters learn this value, we consider the customers' intrinsic signaling incentives and positive feedback effects. Anticipating this, the seller commits to provide price discounts to the followers, and charges the leader a high price. Thus, the profit-maximizing pricing features the cream skimming strategy. We also show that the lack of seller's commitment is detrimental to the social welfare; nonetheless, the sequential selling still boosts up the seller's profit. Embedding a physical network with arbitrary payoff externality among customers, we investigate the optimal targeting strategy in the presence of information asymmetry. We provide precise indices for this leader selection problem. For undirected graphs, we should simply choose the player with the highest degree, irrespective of the seller's commitment power. Going beyond this family of networks, in general the seller's commitment power affects the optimal targeting strategy. |
| Keywords: | revenue management; signaling; information transmission; social networks; |
| JEL: | D82 L14 L15 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1404&r=net |
| By: | Guillaume Burghouwt |
| Abstract: | Many major airports are hubs for network carriers at the same time as serving a large local market. The complementarity between these functions is often seen as a prerequisite for viable hub operations, suggesting that spreading the hub network over multiple airports can be very costly and damages the corner stone of the hub operation: the creation of scope and density economies. |
| Date: | 2013–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:itfaab:2013/5-en&r=net |
| By: | Nima Dehmamy; Sergey V. Buldyrev; Shlomo Havlin; H. Eugene Stanley; Irena Vodenska |
| Abstract: | Financial networks are dynamic and to assess systemic importance and avert losses we needs models which take the time variations of the links and nodes into account. We develop a model that can predict the response of the financial network to a shock and propose a measure for the systemic importance of the banks, which we call BankRank. Using the European Bank Authority 2011 stress test exposure data, we apply our model to the bipartite network of the largest institutional holders of troubled European countries (Greece, Italy, Portugal, Spain, and Ireland). Simulation of the states in our model reveal that it has "calm" state, where shocks do not cause very major losses, and "panicked" states, in which devastating damages occur. Fitting the parameters to Eurocrisis data shows that, before the crisis, the system was mostly in the "calm" regime while during the Eurocrisis it went into the "panicked" regime. The numerical solutions of the our model fit to a good degree to what really happened in the crisis. We also find that, while the largest holders are usually more important, sometimes smaller holders also exhibit systemic importance. In addition, we observe that asset diversification has no clear correlation with our BankRank. Thus diversification is neither reducing systemic, nor necessarily providing routes for contagion. These suggest that our model may provide a useful tool for determining the vulnerability of banks and assets to shocks and for simulating shared portfolio networks in general. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1410.0104&r=net |
| By: | Pietro Battiston |
| Abstract: | Determining the extent to which citation flows, and hence bibliometric indicators based on them, reflect some intrinsic value of scientific works is an important task made very difficult by endogeneity issues. This paper presents an approach which allows to go beyond the abundant anecdotal evidence by testing whether the citation behavior is free from environmental factors. The hypothesis of independence is strongly rejected, providing causal evidence of a Matthew effect at work: namely, the publication of a new work on behalf of an author increases the flow of citations to previous works. Such result is a step towards the estimation of biases affecting bibliometric indicators, at least when interpreted as measures of scientific productivity. The study is based on a novel framework for the study of endogenous network growth subject to constraints. Constraints can be both positive and negative, and change in time depending on the actions of the agents. The framework is not limited to citation networks, and can be applied to any context in which the formation of a link inhibits or implies the formation of another one. |
| Keywords: | Bibliometric indicators, Endogenous growth, Matthew effect, Research evaluation |
| Date: | 2014–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2014/19&r=net |