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on Network Economics |
| By: | Chen, Daniel Li; Schonger, Martin; Wickens, Chris |
| Abstract: | oTree is an open-source and online software for implementing interactive experiments in the laboratory, online, the field or combinations thereof. oTree does not require installation of software on subjects’ devices; it can run on any device that has a web browser, be that a desktop computer, a tablet or a smartphone. Deployment can be internet-based without a shared local network, or local-network-based even without internet access. For coding, Python is used, a popular, open-source programming language. www.oTree.org provides the source code, a library of standard game templates and demo games which can be played by anyone. |
| Keywords: | experimental economics, software, laboratory experiments, field experiments, online experiments, classroom experiments |
| JEL: | A20 C88 C90 |
| Date: | 2015–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62730&r=net |
| By: | Garratt, Rod (Federal Reserve Bank of New York); Zimmerman, Peter |
| Abstract: | Novating a single asset class to a central counterparty (CCP) in an over-the-counter derivatives trading network impacts both the mean and variance of total net exposures between counterparties. When a small number of dealers trade in a relatively large number of asset classes, central clearing increases the mean and variance of net exposures, which may lead to increased counterparty risk and higher margin needs. There are intermediate cases where there is a trade-off: The introduction of a CCP leads to an increase in expected net exposures but this increase is accompanied by a reduction in variance. We extend the work of Duffie and Zhu (2011) by considering general classes of network structures and focus on scale-free and core-periphery structures, which have been shown to be accurate models of real-world financial networks. We find that a CCP is unlikely to be beneficial when the link structure of the network relies on just a few key nodes. In particular, in large scale-free networks a CCP will always worsen expected netting efficiency. In such cases, CCPs can improve netting efficiency only if agents have some degree of risk aversion that allows them to trade off the reduced variance against the higher expected netted exposures. This may explain why, in the absence of regulation, traders in a derivatives network may not develop a CCP themselves. |
| Keywords: | central clearing; core-periphery network; scale-free network |
| JEL: | D85 G14 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:717&r=net |
| By: | Aldasoro, Iñaki; Delli Gatti, Domenico; Faia, Ester |
| Abstract: | We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a matching algorithm. We compare three alternative matching algorithms: maximum entropy, closest matching and random matching. Contagion occurs through liquidity hoarding, interbank interlinkages and fire sale externalities. The resulting network configurations exhibits a core-periphery structure, dis-assortative behavior and low clustering coefficient. We measure systemic importance by means of network centrality and input-output metrics and the contribution of systemic risk by means of Shapley values. Within this framework we analyze the effects of prudential policies on the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk but at the cost of lower efficiency (measured by aggregate investment in non-liquid assets); equity requirements tend to reduce risk (hence increase stability) without reducing significantly overall investment. |
| Keywords: | banking networks,centrality metrics,systemic risk |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:87&r=net |
| By: | Francisco Blasques; Falk Bräuning; Iman van Lelyveld |
| Abstract: | We introduce a structural dynamic network model of the formation of lending relationships in the unsecured interbank market. Banks are subject to random liquidity shocks and can form links with potential trading partners to bilaterally Nash bargain about loan conditions. To reduce credit risk uncertainty, banks can engage in costly peer monitoring of counterparties. We estimate the structural model parameters by indirect inference using network statistics of the Dutch interbank market from 2008 to 2011. The estimated model accurately explains the high sparsity and stability of the lending network. In particular, peer monitoring and credit risk uncertainty are key factors in the formation of stable interbank lending relationships that are associated with improved credit conditions. Moreover, the estimated degree distribution of the lending network is highly skewed with a few very interconnected core banks and many peripheral banks that trade mainly with core banks. Shocks to credit risk uncertainty can lead to extended periods of low market activity, amplified by a reduction in peer monitoring. Finally, our monetary policy analysis shows that a wider interest rate corridor leads to a more active market through a direct effect on the outside options and an indirect multiplier effect by increasing banks' monitoring and search efforts. |
| Keywords: | Interbank liquidity, financial networks, credit risk uncertainty, peer monitoring, monetary policy, trading relationships, indirect parameter estimation |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:491&r=net |
| By: | Magnan, Nicholas; Spielman, David J.; Gulati, Kajal; Lybbert, Travis J. |
| Abstract: | Although there is ample evidence of differences in how and where men and women acquire information, most research on learning and household decisionmaking only considers access to information for a single, typically male, household head. This assumption may be problematic in developing-country agriculture, where women play a fundamental role in farming. Using gender-disaggregated social network data from Uttar Pradesh, India, we analyze agricultural information networks among men and women. We test for gender-specific network effects on demand for laser land leveling—a resource-conserving technology—using data from a field experiment that combines a Becker-DeGroot-Marschak (BDM) auction with a lottery. |
| Keywords: | Agricultural technologies, Gender, Women, information, technology adoption, Developing countries, Social network analysis, peer effects, learning externalities, laser land leveling, gender disagredated data, |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1411&r=net |
| By: | Jakob Landwehr (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | The question how to optimally design an infrastructure network that may be subject to intelligent threats is of highest interest. We address this problem by considering a Designer-Adversary game of optimal network design for the case of imperfect node defense. In this two-stage game, first the Designer defends network connectivity by forming costly links and additionally protecting nodes. Then, the Adversary attacks a fixed number of nodes, aiming to disconnect the network. In contrast to the existing literature, defense is imperfect in the sense that defended nodes can still be destroyed with some fixed probability. We completely characterize the solution of the game for attack budgets of one and two nodes, while for larger budget we present a partial characterization of the solution. To do so, we determine the minimum number of links necessary to construct a network with any degree of connectivity and any given number of essential nodes. |
| Keywords: | Network Design, Network Defense, Designer-Adversary Games, Node Destruction |
| JEL: | C69 C72 D85 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:537&r=net |
| By: | Atabati, Omid; Farzad, Babak |
| Abstract: | We present a network formation model based on a particularly interesting class of networks in social settings, where individuals' positions are determined according to a topic-based or hierarchical taxonomy. In this game-theoretic model, players are located in the leaves of a complete b-ary tree as the seed network with the objective of minimizing their collective distances to others in the network. In the grid-based model of Even-Dar and Kearns [3], they demonstrate the existence of small diameter networks with the threshold of a = 2 where the cost of a new link depends on the distance between the two endpoints to the power of a. We show the appearance of small diameter equilibrium networks with the threshold of a = 1/4 in the hierarchical or tree-based networks. Moreover, the general set of equilibrium networks in our model are guaranteed to exist and they are pairwise Nash stable with transfers [2]. |
| Keywords: | Network formation; Hierarchical networks; Linking game |
| JEL: | C79 D85 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62551&r=net |
| By: | Ahmet Sensoy; Kevser Ozturk; Erk Hacihasanoglu; Benjamin M. Tabak |
| Abstract: | Using dynamic conditional correlations and networks, we bring a novel framework to define the integration and segmentation of emerging countries. The individual EMBI+ spreads of 13 emerging countries from 01/2003 to 12/2013 are used to compare their interaction structure before (phase 1) and after (phase 2) the global financial crisis. Accordingly, the average of dynamic correlations between cross country spreads significantly increases in phase 2. At first, the increased co-movement degree suggests an integration of the sample countries after the crisis. However, correlation based stable networks show that the increase is more likely to be caused by clusters of countries that exhibit high within-cluster co-movement but not between-cluster co-movement. Important implications for international investors and policymakers are discussed. Using dynamic conditional correlations and networks, we bring a novel framework to define the integration and segmentation of emerging countries. The individual EMBI+ spreads of 13 emerging countries from 01/2003 to 12/2013 are used to compare their interaction structure before (phase 1) and after (phase 2) the global financial crisis. Accordingly, the average of dynamic correlations between cross country spreads significantly increases in phase 2. At first, the increased co-movement degree suggests an integration of the sample countries after the crisis. However, correlation based stable networks show that the increase is more likely to be caused by clusters of countries that exhibit high within-cluster co-movement but not between-cluster co-movement. Important implications for international investors and policymakers are discussed. |
| Keywords: | emerging markets, financial crisis, integration, segmentation, dynamic conditional correlation, financial networks |
| JEL: | C58 D85 E44 F30 G01 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:bor:wpaper:1526&r=net |