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on Network Economics |
| By: | Timo Hiller |
| Abstract: | This paper presents a simple model of strategic network formation with local complementarities in effort levels and positive local externalities for a general class of payoff functions. Results are obtained for one-sided and two-sided link creation. In both cases (pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. The relevance of the convexity of the value function (gross payoffs as a function of neighbours' effort levels when best responding) in obtaining nested split graphs is highlighted. Under additional assumptions on payoffs, we show that the only efficient networks are the complete and the empty network. Furthermore, there exists a range of linking cost such that any (pairwise) Nash equilibrium is inefficient and for a strict subset of this range any (pairwise) Nash equilibrium network structure is different from the efficient network. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of firms. |
| Keywords: | strategic network formation; peer effects; strategic complements; positive externalities |
| JEL: | J1 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58176&r=net |
| By: | Claussen, Jörg; Engelstätter, Benjamin; Ward, Michael R. |
| Abstract: | Peer influence through word-of-mouth (WOM) plays an important role in many information systems but identification of causal effects is challenging. We identify causal WOM effects in the empirical setting of game adoption in a social network for gamers by exploiting differences in individuals' networks. Friends of friends do not directly influence a focal user, so we use their characteristics to instrument for behavior of the focal user's friends. We go beyond demonstrating a large and highly significant WOM effect and also assess moderating factors of the strength of the effect on the sender and receiver side. We find that users with the most influence on others tend to be better gamers, have larger social networks, but spend less time playing. Interestingly, these are also the users who are least susceptible to WOM effects. |
| Keywords: | Word-of-Mouth,Peer Effects,Adoption,Social Networks,Video Games |
| JEL: | D85 L14 M31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:14129&r=net |
| By: | Gabrieli, Silvia; Georg, Co-Pierre |
| Abstract: | We study the liquidity allocation among European banks around the Lehman insolvency using a novel dataset of all interbank loans settled via the Eurosystem's payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty characteristics and banks start hoarding liquidity by shortening the maturity of their interbank lending. This aggregate change in liquidity reallocation is accompanied by a substantial structural change that can best be characterized as a shrinking of the interbank network. Such a change in the network structure is consequential: banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel. |
| Keywords: | interbank loans,network topology,financial stability |
| JEL: | D85 E5 G1 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:442014&r=net |
| By: | John Barrdear |
| Abstract: | I present a model of social learning over an exogenous, directed network that may be readily nested within broader macroeconomic models with dispersed information and combines the attributes that agents (a) act repeatedly and simultaneously; (b) are Bayes-rational; and (c) have strategic interaction in their decision rules. To overcome the challenges imposed by these requirements, I suppose that the network is opaque: agents do not know the full structure of the network, but do know the link distribution. I derive a specific law of motion for the hierarchy of aggregate expectations, which includes a role for network shocks (weighted sums of agents’ idiosyncratic shocks). The network causes agents’ beliefs to exhibit increased persistence, so that average expectations overshoot the truth following an aggregate shock. When the network is sufficiently (and plausibly) irregular, transitory idiosyncratic shocks cause persistent aggregate effects, even when agents are identically sized and do not trade. |
| Keywords: | dispersed information; network learning; heterogeneous agents; aggregate volatility |
| JEL: | C72 D82 D83 D84 |
| Date: | 2014–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58083&r=net |
| By: | Michel Grabisch (Paris School of Economics - Centre d'Economie de la Sorbonne); Antoine Mandel (Paris School of Economics - Centre d'Economie de la Sorbonne); Agnieszka Rusinowska (Paris School of Economics - Centre d'Economie de la Sorbonne); Emily Tanimura (Centre d'Economie de la Sorbonne) |
| Abstract: | We consider a model of influence with a set of non-strategic agents and two strategic agents. The non-strategic agents have initial opinions and are linked through a simply connected network. They update their opinions as in the DeGroot model. The two strategic agents have fixed opinions, 1 and 0 respectively, and are characterized by the magnitude of the impact they can exert on non-strategic agents. Each strategic agent forms a link with one non-strategic agent in order to alter the average opinion that eventually emerges in the network. This procedure defines a zero-sum game whose players are the two strategic agents and whose strategy set is the set of non-strategic agents. We focus on the existence and the characterization of equilibria in pure strategy in this setting. Simple examples show that the existence of a pure strategy equilibrium does depend on the structure of the network. The characterization of equilibrium we obtain emphasizes on the one hand the influenceability of target agents and on the other hand their centrality whose natural measure in our context defines a new concept, related to betweenness centrality, that we call intermediacy. We also show that in the case where the two strategic agents have the same impact, symmetric equilibria emerge as natural solutions whereas in the case where the impacts are uneven, the strategic players generally have differentiated equilibrium targets, the high-impacts agent focusing on centrality and the low-impact agent on influenceability. |
| Keywords: | Influence networks, beliefs, DeGroot model, strategic player, convergence, consensus, equilibrium. |
| JEL: | C71 D85 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:15006&r=net |
| By: | Michael D. König (University of Zurich); Dominic Rohner (University of Lausanne); Mathias Thoenig (University of Lausanne); Fabrizio Zilibotti (University of Zurich) |
| Abstract: | We study from both a theoretical and an empirical perspective how a network of military alliances and enmities affects the intensity of a conflict. The model combines elements from network theory and from the politico-economic theory of conflict. We postulate a Tullock contest success function augmented by an externality: each group’s strength is increased by the fighting effort of its allies, and weakened by the fighting effort of its rivals. We obtain a closed form characterization of the Nash equilibrium of the fighting game, and of how the network structure affects individual and total fighting efforts. We then perform an empirical analysis using data on the Second Congo War, a conflict that involves many groups in a complex network of informal alliances and rivalries. We estimate the fighting externalities, and use these to infer the extent to which the conflict intensity can be reduced through (i) removing individual groups involved in the conflict; (ii) pacification policies aimed at alleviating animosity among groups. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:195&r=net |
| By: | Makoto Nirei; Julián Caballero; Vladyslav Sushko |
| Abstract: | Loan syndication increases bank interconnectedness through co-lending relationships. We study the financial stability implications of such dependency on syndicate partners in the presence of shocks to banks' capital. Model simulations in a network setting show that such shocks can produce rare events in this market when banks have shared loan exposures while also relying on a common risk management tool such as value-at-risk (VaR). This is because a withdrawal of a bank from a syndicate can cause ripple effects through the market, as the loan arranger scrambles to commit more of its own funds by also pulling back from other syndicates or has to dissolve the syndicate it had arranged. However, simulations also show that the core-periphery structure observed in the empirical network may reduce the probability of such contagion. In addition, simulations with tighter VaR constraints show banks taking on less risk ex-ante. |
| Keywords: | Syndicated lending, systemic risk, network externalities, value at risk, bank capital shocks, rare event risk |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:484&r=net |
| By: | Csató, László |
| Abstract: | Network analysis has emerged as a key technique in communication studies, economics, geography, history and sociology, among others. A fundamental issue is how to identify key nodes in a network, for which purpose a number of centrality measures have been developed. This paper proposes a new parametric family of centrality measures called generalized degree. It is based on the idea that a relationship to a more interconnected node contributes to centrality in a greater extent than a connection to a less central one. Generalized degree improves on degree by redistributing its sum over the network with the consideration of the global structure. Application of the measure is supported by a set of basic properties. A sufficient condition is given for generalized degree to be rank monotonic, excluding counter-intuitive changes in the centrality ranking after certain modifications of the network. The measure has a graph interpretation and can be calculated iteratively. Generalized degree is recommended to apply besides degree since it preserves most favorable attributes of degree, but better reflects the role of the nodes in the network and has an increased ability to distinguish between their importance. |
| Keywords: | networks, centrality measures, degree, axiomatic approach |
| JEL: | D85 |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2015/02&r=net |
| By: | Giulio Cimini; Tiziano Squartini; Andrea Gabrielli; Diego Garlaschelli |
| Abstract: | The assessment of fundamental properties for economic and financial systems, such as systemic risk, is systematically hindered by privacy issues$-$that put severe limitations on the available information. Here we introduce a novel method to reconstruct partially-accessible networked systems of this kind. The method is based on the knowledge of the fitnesses, $i.e.$, intrinsic node-specific properties, and of the number of connections of only a limited subset of nodes. Such information is used to calibrate a directed configuration model which can generate ensembles of networks intended to represent the real system, so that the real network properties can be estimated within the generated ensemble in terms of mean values of the observables. Here we focus on estimating those properties that are commonly used to measure the network resilience to shock and crashes. Tests on both artificial and empirical networks shows that the method is remarkably robust with respect to the limitedness of the information available, thus representing a valuable tool for gaining insights on privacy-protected economic and financial systems. |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1411.7613&r=net |
| By: | Robin Mansell |
| JEL: | L91 L96 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56557&r=net |