nep-net New Economics Papers
on Network Economics
Issue of 2015‒05‒02
twelve papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Google matrix of the world network of economic activities By V. Kandiah; H. Escaith; D. L. Shepelyansky
  2. A Trade Network Theory By Hübler, Michael
  3. Consistent Risk Acceptance Criteria through Networks By Cerqueti, Roy; Lupi, Claudio
  4. Public Engagement in Electricity Network Development: A Case Study of the Beauly–Denny Project in Scotland By Wenche Tobiasson; Christina Beestermöller; Tooraj Jamasb
  5. Services Sector Development and Improving Production Network in ASEAN By Yose Rizal Damuri
  6. Insights to the European debt crisis using recurrence quantification and network analysis By Peter Martey Addo
  7. Network Structure and Counterparty Credit Risk By Alexander von Felbert
  8. Identifying Interbank Loans, Rates, and Claims Networks from Transactional Data By Carlos León; Jorge Cely; Carlos Cadena
  9. Efficiency vs. Stability in a Mixed Network Formation Model By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  10. Pricing in Social Networks under Limited Information By Elias Carroni; Simone Righi
  11. Analysing the role of consumers within Technological Innovation Systems towards sustainability: the case of Alternative Food Networks By Filippo Randelli; Benedetto Rocchi
  12. Efficient Network Structures with Separable Heterogeneous Connection Costs By Babak Heydari; Mohsen Mosleh; Kia Dalili

  1. By: V. Kandiah; H. Escaith; D. L. Shepelyansky
    Abstract: Using the new data from the OECD-WTO world network of economic activities we construct the Google matrix $G$ of this directed network and perform its detailed analysis. The network contains 58 countries and 37 activity sectors for years 1995 and 2008. The construction of $G$, based on Markov chain transitions, treats all countries on equal democratic grounds while the contribution of activity sectors is proportional to their exchange monetary volume. The Google matrix analysis allows to obtain reliable ranking of countries and activity sectors and to determine the sensitivity of CheiRank-PageRank commercial balance of countries in respect to price variations and labor cost in various countries. We demonstrate that the developed approach takes into account multiplicity of network links with economy interactions between countries and activity sectors thus being more efficient compared to the usual export-import analysis. The spectrum and eigenstates of $G$ are also analyzed being related to specific activity communities of countries.
    Date: 2015–04
  2. By: Hübler, Michael
    Abstract: This paper introduces a new trade model type. It combines the gravity model, well-known in international economics, with network theory. With this approach, complicated trade networks can be algebraically solved in form of systems of linear (differential) equations. Business cycles and productivity shocks can be represented via complex numbers or the Laplace transformation. With the help of this model, new mechanisms of international trade are identified. Four theoretical examples with numerical applications are presented. First, it is demonstrated how an increase in trade from Asia to North America affects the world economy. Second, an intuitive rule for finding the welfare-optimal tariff is derived. Third, three possibilities for vanishing trade effects (fluctuations) are explained: trade diversion, the "river-island effect", and overlapping business cycles. Fourth, it is shown how adjustment costs delay the propagation of shocks or business cycles.
    Keywords: international trade; gravity model; network theory; business cycles; propagation of shocks
    JEL: F11 F42 F44
    Date: 2015–02
  3. By: Cerqueti, Roy; Lupi, Claudio
    Abstract: In decision theory projects are usually evaluated in terms of their riskiness, and often decision under risk is intended as the one-shot-type binary choice of accepting or not accepting the risk. This paper elaborates on the concept of risk acceptance, and aims at developing a theoretical framework based on networks theory. In doing this, the interconnections between the random quantities involved in the decision are taken into account. The conditions to be satisfied in order for the risk-acceptance criterion to be consistent with the axiomatization of standard expected utility theory are also explored. In accordance with existing literature, we obtain that a risk evaluation problem can be meaningful even if it is not consistent with the standard axiomatization of expected utility. Some illustrative examples are also provided.
    Keywords: Risk acceptance, networks, decision theory, expected utility, insurance
    JEL: D81 D85 G22
    Date: 2015–04–20
  4. By: Wenche Tobiasson; Christina Beestermöller; Tooraj Jamasb
    Abstract: Ambitious renewable energy targets and an aging infrastructure necessitate a substantial upgrading and expansion of the electricity transmission networks around Europe and beyond. Although vital for the functioning of the economy, grid development projects are often met by public opposition, which increase costs and lengthy planning processes. The current planning processes have proven ineffective at resolving the conflicts among stakeholders, indicating the need for a new approach. We analyse these issues from an Economic perspective, outlining the economic characteristics of transmission developments and public engagement. We identify previously overlooked features of the planning process that are contributing to the rise in conflicts, public opposition and prolonged project realisation. The Scottish Beauly-Denny high voltage transmission development is discussed in detail and our findings indicate a need for increased engagement with local communities at an earlier stage of planning. Trust between communities, developers and government is important for future negotiations and can be achieved through transparency, specific education and set guidelines for stakeholder engagement in the planning process.
    Keywords: Electricity transmission, public engagement, property rights
    JEL: L94 L98 D23 P48
    Date: 2015–04–21
  5. By: Yose Rizal Damuri (CSIS)
    Abstract: While the importance of services sector in creating value added and employment has been recognized, the role of services as providers of major inputs to production sector are often forgotten and overlooked. This paper stresses the importance of services sector in supporting economic activities in general; the role that has become increasingly more critical in the wake of global production network. It argues that development of the services sector is crucial to supporting an economy’s participation in networks of production and in promoting industrial upgrading. Within that context, this paper provides insight on the direction of services development in ASEAN countries and those countries can benefit by supporting greater services integration across the region.
    Keywords: Services
    Date: 2015–04
  6. By: Peter Martey Addo (Centre d'Economie de la Sorbonne)
    Abstract: The turmoil in the sovereign debt markets in Europe has raised concerns on the usefulness of sovereign credit default swaps and government bond yields in periods of distress. In addressing this issue, we introduce a novel nonlinear approach for the analysis of non-stationary multivariate data based on complex networks and recurrence analysis. We show the relevance of the approach in studying joint risk connections, extracting hidden spatial information, time dependence, detection of regime changes and providing early warning indicators. The feasibility and relevance of the approach in studying systemic risk is discussed. Finally, we share more light on possible extensions and applications of the approach to systemic risk
    Keywords: Sovereign debt crisis; Economic growth; Recurrence networks; Financial stability; Systemic risk
    JEL: C40 E50 G01 G18 G21
    Date: 2015–04
  7. By: Alexander von Felbert
    Abstract: In this paper we offer a novel type of network model, which is capable of capturing the precise structure of a financial market based, for example, on empirical findings. With the attached stochastic framework it is further possible to study how an arbitrary network structure and its expected counterparty credit risk are analytically related to each other. This allows us, for the first time, to model and to analytically analyse the precise structure of a financial market. It further enables us to draw implications for the study of systemic risk. We apply the powerful theory of characteristic functions and Hilbert transforms, which have not been used in this combination before. We then characterise Eulerian digraphs as distinguished exposure structures and we show that considering the precise network structures is crucial for the study of systemic risk. The introduced network model is then applied to study the features of an over-the-counter and a centrally cleared market. We also give a more general answer to the question of whether it is more advantageous for the overall counterparty credit risk to clear via a central counterparty or classically bilateral between the two involved counterparties. We then show that the exact market structure is a crucial factor in answering the raised question.
    Date: 2015–04
  8. By: Carlos León (Banco de la República de Colombia and Tilburg University); Jorge Cely (Banco de la República de Colombia); Carlos Cadena (Banco de la República de Colombia)
    Abstract: We identify interbank (i.e. non-collateralized) loans from the Colombian large-value payment system by implementing Furfine’s method. After identifying interbank loans from transactional data we obtain the interbank rates and claims without relying on financial institutions’ reported data. Contrasting identified loans with those consolidated from financial institutions’ reported data suggests the algorithm performs well, and it is robust to changes in its setup. The weighted average rate implicit in transactional data matches local interbank rate benchmarks strictly. From identified loans we also build the interbank claims network. The three main outputs (i.e. the interbank loans, the rates, and the claims networks) are valuable for examining and monitoring the money market, for contrasting data reported by financial institutions, and as inputs in models of financial contagion and systemic risk. Classification JEL: E42, E44
    Keywords: Furfine’s method, interbank, IBR, TIB.
    Date: 2015–04
  9. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Keywords: network formation, unilateral link-formation, bilateral link-formation, stability, efficiency, cost share
    JEL: A14 C72 D20 J00
    Date: 2015–03–26
  10. By: Elias Carroni (CERPE, University of Namur); Simone Righi (University of Modena and Reggio Emilia)
    Abstract: We model the choices of a monopolist who faces a partially uninformed population of consumers. She aims at expanding demand by exploiting his (limited) knowledge about consumers’ social network. She offers rewards to current clients in order to induce them to activate their social network and to convince peers to buy the product sold by the company. The program is profitable provided that the monopolist faces a serious enough informational problem and that the cost of investment in the social network is not prohibitively high. Price for informed consumers is lowered by the introduction of the reward compared to the benchmark where no program is run. There are no effects on the price charged to uninformed consumers. The offer of bonuses affects individual incentives of informed people to share information, determining a minimal degree condition for the costly investment in the social network. The level of such threshold strongly depends on the distribution of connections in the social network. In random networks, roughly the most popular half of informed consumers invests, regardless of network density. On the contrary, in scale-free networks the monopolist faces a clear-cut decision between maximising margins (running a small referral program) and maximising demand (motivating many informed agents to communicate). The optimal choice depends on the probability of observing highly-connected individuals. In empirically observed scale-free networks, the first alternative would be preferred, in line with real-world markets.
    Keywords: social networks, monopoly pricing, network-based pricing
    Date: 2015–04
  11. By: Filippo Randelli (Dipartimento di Scienze per l'Economia e l'Impresa); Benedetto Rocchi (Dipartimento di Scienze per l'Economia e l'Impresa)
    Abstract: In recent years, an increasing number of studies have stressed the relevance of the consumer experience in the research of new trajectories towards sustainability. On the early stage of an innovation process the purchase continue to be strategic for the market creation although consumers should not be conceived only as selector of different commercial options. This paper argues for a broader application of Technological Innovation System (TIS) conceptual framework and proposes an analytical approach that explicitly considers consumers and producers as interacting and then coevolving actors. In this view the transition towards sustainability is not exclusively a production based innovation process and also the interactive relation between consumers and producers may foster the transition towards a new socio-technical regime. The conceptual framework will be introduced and exemplified with the case of Alternative Food Networks, a TIS in the food industry, based on a meta-analysis of the literature.
    Keywords: Technological Innovation Systems, Consumers, Alternative Food Networks, Agriculture
    JEL: D12 O31 Q55
    Date: 2015
  12. By: Babak Heydari; Mohsen Mosleh; Kia Dalili
    Abstract: We introduce a heterogeneous connection model for network formation to capture the effect of cost heterogeneity on the structure of efficient networks. In the proposed model, connection costs are assumed to be separable, which means the total connection cost for each agent is uniquely proportional to its degree. For these sets of networks, we provide the analytical solution for the efficient network and discuss stability impli- cations. We show that the efficient network exhibits a core-periphery structure, and for a given density, we find a lower bound for clustering coefficient of the efficient network.
    Date: 2015–04

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