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on Network Economics |
| By: | Georg, Co-Pierre |
| Abstract: | When banks choose similar investment strategies, the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy ex-ante based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social belief is strong and the financial network is fragmented, banks follow their peers and their investment strategies synchronize. This effect is stronger for less informative private signals. For endogenously formed interbank networks, however, less informative signals lead to higher network density and less synchronization. It is shown that the former effect dominates the latter. JEL Classification: G21, C73, D53, D85 |
| Keywords: | endogenous nancial networks, multi-agent simulations, social learning, Systemic risk |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141700&r=net |
| By: | Jeitschko, Thomas D.; Tremblay, Mark J. |
| Abstract: | We develop a model for two-sided markets with consumers and producers, who interact through a platform. Typical settings for the model are the market for smartphones with phone users, app producers, and smartphone operating systems; or the video game market with game players, video game producers, and video game consoles. Only consumers who purchase the platform can access content from the producers. Consumers are heterogeneous in their gains from the producer side; and producers are heterogeneous in their costs of bringing apps to the platform. We consider competition between two homogeneous platforms that allows consumers and firms to optimize with respect to how they home, i.e. we allow both individual consumers and individual producers to multi-home or single-home depending on whether it is optimal based on their type. This leads to multiple equilibrium allocations of consumers and firms - all of which are seen in existing markets. We then find conditions under which a monopoly platform generates higher surplus than two competing homogeneous platforms. |
| Keywords: | two-sided markets,platforms,platform competition,multi-homing,single-homing,endogenous homing decisions,network effects |
| JEL: | L14 L22 D40 L13 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:166&r=net |
| By: | Brent Glover; Seth Richards-Shubik |
| Abstract: | We use a network model of credit risk to measure market expectations of the potential spillovers from a sovereign default. Specifically, we develop an empirical model, based on the recent theoretical literature on contagion in financial networks, and estimate it with data on sovereign credit default swap spreads and the detailed structure of financial linkages among thirteen European sovereigns from 2005 to 2011. Simulations from the estimated model show that a sovereign default generates only small spillovers to other sovereigns. These results imply that credit markets do not demand a significant premium for the interconnectedness of sovereign debt in Europe. |
| JEL: | D85 F34 F36 G01 L14 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20567&r=net |
| By: | Finger, Karl; Lux, Thomas |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:1&r=net |
| By: | Attila Ambrus; Arun G. Chandrasekhar; Matt Elliott |
| Abstract: | This paper studies costly network formation in the context of risk sharing. Neighboring agents negotiate agreements as in Stole and Zwiebel (1996), which results in the social surplus being allocated according to the Myerson value. We uncover two types of inefficiency: overinvestment in social relationships within group (e.g., caste, ethnicity), but underinvestment across group. We find a novel tradeoff between efficiency and equality. Both within and across groups, inefficiencies are minimized by increasing social inequality, which results in financial inequality and increasing the centrality of the most central agents. Evidence from 75 Indian village networks is congruent with our model. |
| JEL: | C78 D31 D61 D86 L14 Z13 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20669&r=net |
| By: | Michal Ksawery Popiel (Queen's University) |
| Abstract: | Social networks are an important component in understanding the decision to consume addictive substances. They capture the role of limited access, peer influence, and social acceptance and tolerance. However, despite the empirical evidence of their role, they have been absent from theoretical models. This paper proposes a mechanism through which agents can influence each other in their decision to consume an addictive good. An agent's decision is sensitive to her state of addiction as well as to the composition of her neighbourhood. The model is consistent with the empirical evidence that peer influence can work in both ways: influencing an individual to use and helping them to quit. The structure of the network has important implications on the outcome of agents' decisions as well as the effectiveness of policies aimed at limiting use of addictive substances through deterrence. I provide a network-based explanation of why usage rates can vary across otherwise similar agents and show how in some situations encouraging network ties can lead to lower use while in others it can have the opposite effect. Furthermore, I explore the effect of networks on diffusion of addiction and, using simulations, find that addiction spreads faster in an environment where there are few strong links than in one with many weak links. |
| Keywords: | addiction, dual-self, networks, random utility |
| JEL: | C70 D01 I18 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1332&r=net |
| By: | Maria Elo (Turku School of Economics, University of Turku & ZenTra) |
| Abstract: | Many underlying developments of globalization should be investigated. Diaspora networks represent an invisible actor in international business (IB), and embody a channel and arena for transnational entrepreneurship (TE). Thus, understanding the development of contemporary diaspora networks and exploring their business potential is important. These networks impact multiple aspects of economic activity, such as investment, entrepreneurship, innovation, expansion, internationalization and creation of international businesses. Despite the multifaceted influence of diaspora networks, little empirical research on their effects has been conducted. This gap may originate in the lack of theoretical and conceptual rigor. In short, the term “diaspora network” remains to be fully discovered in international business. This paper contributes to the literature by increasing the understanding of diaspora networks by reviewing the current literature. The purpose is to enrich the conceptual and theoretical development of IB and TE by connecting them to the emerging field of diaspora entrepreneurship. The paper discusses diaspora networks, illustrates extant theories and research findings, and suggests issues for further research. |
| Keywords: | Diaspora networks, review, international business, international entrepreneurship |
| JEL: | F22 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:40&r=net |
| By: | Philipp Möhlmeier (BiGSEM - Bielefeld University - Center for Mathematical Economics); Agnieszka Rusinowska (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); Emily Tanimura (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-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 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00825266&r=net |