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on Network Economics |
| By: | Antonio Cabrales; Piero Gottardi; Fernando Vega-Redondo |
| Abstract: | We investigate the trade-off, arising in financial networks, between higher risksharing and greater exposure to contagion when the connectivity increases. We find that with shock distributions displaying "fat" tails, extreme segmentation into small components is optimal, while minimal segmentation and high density of connections are optimal with distributions exhibiting "thin" tails. For less regular distributions, intermediate degrees of segmentation and sparser connections are optimal. If firms are heterogeneous, optimality requires perfect assortativity in their linkages. In general, however, a conflict arises between optimality and individual incentives to establish linkages, due to a "size externality" not internalized by firms. |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2014-18&r=net |
| By: | Gandal, Neil; Halaburda, Hanna |
| Abstract: | We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with "winner-take-all" dynamics. |
| Keywords: | Bitcoin; cryptocurrency; network effects |
| JEL: | L17 L86 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10157&r=net |
| By: | HERINGS, P. Jean-Jacques (Maastricht University); MAULEON, Ana (CEREC, Saint-Louis University, B-1000 Brussels, Belgium; Université catholique de Louvain, CORE, Belgium); VANNETELBOSCH, Vincent (Université catholique de Louvain, CORE, Belgium; CEREC, Saint-Louis University, B-1000 Brussels, Belgium) |
| Abstract: | We provide a tractable concept that can be used to study the influence of the degree of farsightedness on network stability. A set of networks GK is a level-K farsightedly stable set if three conditions are satisfied. First, external deviations should be deterred. Second, from any network outside of GK there is a sequence of farsighted improving paths of length smaller than or equal to K leading to some network in GK. Third, there is no proper subset of GK satisfying the first two conditions. We show that a level-K farsightedly stable set always exists and we provide a sufficient condition for the uniqueness of a level-K farsightedly stable set. There is a unique level-1 farsightedly stable set G1 consisting of all networks that belong to closed cycles. Level-K farsighted stability leads to a refinement of G1 for generic allocation rules. We then provide easy to verify conditions for a set to be level-K farsightedly stable and we consider the relationship between level-K farsighted stability and efficiency of networks. We show the tractability of the concept by applying it to a model of criminal networks. |
| Keywords: | farsightedness, stability, networks |
| JEL: | A14 C70 D20 |
| Date: | 2014–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2014032&r=net |
| By: | Banerjee, Abhijit; Chandrasekhar, Arun G; Duflo, Esther; Jackson, Matthew O. |
| Abstract: | Can we identify the members of a community who are best- placed to diffuse information simply by asking a random sample of in- dividuals? We show that boundedly-rational individuals can, simply by tracking sources of gossip, identify those who are most central in a network according to "diffusion centrality", which nests other standard centrality measures. Testing this prediction with data from 35 Indian villages, we find that respondents accurately nominate those who are diffusion central (not just those with many friends). Moreover, these nominees are more central in the network than traditional village leaders and geographically central individuals. |
| Keywords: | centrality; diffusion; gossip; influence; networks; social learning |
| JEL: | D13 D85 L14 O12 Z13 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10120&r=net |
| By: | Laurent Bergé |
| Abstract: | The question of the determinants of inter-regional knowledge flows has received a growing interest in the recent past. Particularly, the question of the relationship between geography and networks has been debated. Yet, at the inter-regional level, there is no study assessing the effect of networks on the the value of knowledge flows. This may come from the fact that methodological tools assessing network characteristics at the dyadic level are lacking for aggregated networks (such as the network of inter-regional knowledge flows). This paper aims to fill this gap and contribute to the debate on the determinants of knowledge flows. To do so we first define a new measure to assess 'network proximity' at the level of the regional dyad, based on the concept of inter-regional bridging path. Here a bridging path is a path at the micro-level between two regions via a third one. For instance, if an agent from region B has collaborated with an agent from region A and an agent from region C, then there is a bridging path between A and C via B. By using the information at the aggregated level, and assuming a 'random matching process' of the agents at the micro level, we are able to derive a closed form of the total expected number of bridging paths between two given regions. By the concept of triadic closure at the micro-level, the regional pairs having a high number of bridging paths should be more prone to collaborate. We then illustrate the measure theoretically defined by making use of co-publications data from chemistry journals for the period 2001-2005, within the five largest European countries (France, Germany, Italy, Spain, the United Kingdom). The studied network is then composed of all the regional pairs among 386 active NUTS3 regions. Using a zero-inflated negative binomial regression model along gravity equations, we then assess the effect of geographical distance, spatial contiguity and national borders. We also assess the effect of 'network proximity' by using the expected number of bridging paths as a proxy. As in previous studies, the effects of the geographical distance or the national borders are negative. But we show that the measure of 'network proximity' has a positive and significant effect. All the more, it also significantly alleviates the impeding effect of national borders on cross-countries collaborations, then suggesting that 'network proximity' is a channel favored for international collaborations. |
| Keywords: | network formation; gravity model; regional closure; aggregated networks; spatial proximity; network proximity; co-publication; research collaboration |
| JEL: | D85 O31 R12 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa14p1498&r=net |
| By: | Langfield, Sam (Bank of England); Liu, Zijun (Bank of England); Ota, Tomohiro (Bank of England) |
| Abstract: | We present new evidence on the structure of interbank connections in key markets: derivatives, marketable securities, repo, unsecured lending and secured lending. Taken together, these markets comprise two networks: a network of interbank exposures and a network of interbank funding. Network structure varies across and within these two networks, for reasons related to markets’ different economic functions. Credit risk and liquidity risk therefore propagate in the interbank system through different network structures, with implications for financial stability. |
| Keywords: | Interbank markets; core-periphery; intermediation; financial networks; market microstructure |
| JEL: | D85 G21 L14 |
| Date: | 2014–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0516&r=net |
| By: | Chen, Xi (Yale University) |
| Abstract: | The tradition of keeping written records of gift received during household ceremonies in many countries offers researchers an underutilized means of data collection for social network analysis. This paper first summarizes unique features of the gift record data that circumvent five prevailing sampling and measurement issues in the literature, and we discuss their advantages over existing studies at both the individual level and the dyadic link level using previous data sources. We then document our research project in rural China that implements a multiple wave census-type household survey and a long-term gift record collection. The pattern of gift-giving in major household social events and its recent escalation is analyzed. There are significantly positive correlations between gift network centrality and various forms of informal insurance. Finally, economic inequality and competitive marriage market are among the main demographic and socioeconomic determinants of the observed gift network structure. |
| Keywords: | gift-giving, long-term gift record, social networks, centrality, China |
| JEL: | C8 D1 R2 Z1 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8642&r=net |
| By: | Wuggenig, Mirjam |
| Abstract: | The paper analyzes a dynamic model of rational strategic learning in a network. It complements existing literature by providing a detailed picture of short-run dynamics in a game of strategic experimentation where agents are located in a social network. We show that the delay in information transmission caused by incomplete network structures may induce players to increase own experimentation efforts. As a consequence a complete network can fail to be optimal even if there are no costs for links. This means that in the design of networks there exists a trade-off between the speed of learning and accuracy. |
| Keywords: | Strategic Experimentation; Networks; Learning |
| JEL: | C73 D83 D85 |
| Date: | 2014–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:485&r=net |
| By: | Dequiedt, Vianney; Zenou, Yves |
| Abstract: | The centrality of an agent in a network has been shown to be crucial in explaining different behaviors and outcomes. In this paper, we propose an axiomatic approach to characterize a class of centrality measures for which the centrality of an agent is recursively related to the centralities of the agents she is connected to. This includes the Katz-Bonacich and the eigenvector centrality. The core of our argument hinges on the power of the consistency axiom, which relates the properties of the measure for a given network to its properties for a reduced problem. In our case, the reduced problem only keeps track of local and parsimonious information. This is possible because all the centralities study here are local in the sense that the centrality measure of an agent only depends on her set of neighbors and their centralities. Our axiomatic characterization highlights the conceptual similarities among this class of measures. |
| Keywords: | axiomatic approach; centrality measures; Consistency; networks |
| JEL: | C70 D85 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10031&r=net |
| By: | Arcand, Jean-Louis; Jaimovich, Dany |
| Abstract: | Using a unique dataset collected in 59 rural Gambian villages, we study how ethnic heterogeneity is related to the structure of four economic exchange networks: land, labor, inputs and credit. We find that different measures of village-level ethnic fragmentation are mostly uncorrelated with network structure. At a more disaggregated level, household heads belonging to ethnic minorities are not less central than those from the predominant ethnicity in any of the networks and, at the dyadic level, the fact that two households share ethnicity is not an economically significant predictor of link formation. Our results indicate that, in the particular setting of our study, the structure of the exchange networks is better defined by other variables than ethnicity, and that ethnic heterogeneity is unlikely to be a driver for sub-optimal economic exchanges. We argue that our findings can be interpreted in a causal way as the current distribution of ethnic groups in rural Gambia is largely influenced by specific historical features of the British colonial administration. Moreover, the network structure of our data allow us to include fixed effects at different levels as well as to precisely measure kinship ties, a confounding variable often omitted in previous studies. |
| Keywords: | Keywords: West Africa, Social Networks, Ethnic Fragmentation. JEL codes: C31, D04, 012, Z13. |
| JEL: | C31 O1 O12 Z13 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:60497&r=net |
| By: | Husslage, B.G.M. (Tilburg University, Center For Economic Research); Borm, P.E.M. (Tilburg University, Center For Economic Research); Burg, T.; Hamers, H.J.M. (Tilburg University, Center For Economic Research); Lindelauf, R. (Tilburg University, Center For Economic Research) |
| Abstract: | All over the world intelligence services are collecting data concerning possible terrorist threats. This information is usually transformed into network structures in which the nodes represent the individuals in the data set and the links possible connections between these individuals. Unfortunately, it is nearly impossible to keep track of all individuals in the resulting complex network. Therefore, Lindelauf et al. (2013) introduced a methodology that ranks terrorists in a network. The rankings that result from this methodology can be used as a decision support system to efficiently allocate the scarce surveillance means of intelligence agencies. Moreover, usage of these rankings can improve the quality of surveillance which can in turn lead to prevention of attacks or destabilization of the networks under surveillance. The methodology introduced by Lindelauf et al. (2013) is based on a game theoretic centrality measure, which is innovative in the sense that it takes into account not only the structure of the network but also individual and coalitional characteristics of the members of the network. In this paper we elaborate on this methodology by introducing a new game theoretic centrality measure that better takes into account the operational strength of connected subnetworks. Moreover, we perform a sensitivity analysis on the rankings derived from this new centrality measure for the case of Al Qaeda’s 9/11 attack. In this sensitivity analysis we consider firstly the possible additional information available about members of the network, secondly, variations in relational strength and, finally, the absence or presence of a small percentage of links in the network. We also introduce a case specific method to compare the different rankings that result from the sensitivity analysis and show that the new centrality measure is robust to small changes in the data. |
| Keywords: | terrorism; Network Analysis; Centrality measures; Cooperative game theory |
| JEL: | C71 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:191548ed-34ba-4aba-abbf-948ce9088809&r=net |