nep-net New Economics Papers
on Network Economics
Issue of 2015‒08‒30
twelve papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Together at Last: The Endogenous Formation of Free Trade Agreements and International R&D Networks By Tran, Tat Thanh; Zikos, Vasileios
  2. Blockchains as a Path to a Network of Systems - An Emerging New Trend of the Digital Platforms in Industry and Society By Mattila, Juri; Seppälä, Timo
  3. How Connected is the Global Sovereign Credit Risk Network? By Gorkem Bostanci; Kamil Yilmaz
  4. Testing Models of Social Learning on Networks: Evidence from a Lab Experiment in the Field By Arun G. Chandrasekhar; Horacio Larreguy; Juan Pablo Xandri
  5. Contracting on Networks By Mohamed Belhaj; Frédéric Deroïan
  6. Strategic Formation of Customer Relationship Networks By Sonja Brangewitz; Claus-Jochen Haake; Philipp Moehlmeier
  7. Bonacich Measures as Equilibria in Network Models By Hannu Salonen
  8. Evolution of Fairness and Group Formation in Multi-Player Ultimatum Games By NISHIMURA, Takeshi; OKADA, Akira; SHIRATA, Yasuhiro
  9. English as a global language By Jacques Melitz
  10. Network Form and Performance. The Case of Multi-Unit Franchising By Muriel Fadairo; Cintya Lanchimba; Josef Windsperger
  11. Networks of many public goods with non-linear best replies By Yann Rébillé; Lionel Richefort
  12. The Similarity of Global Value Chains: A Network-Based Measure By Zhen Zhu; Greg Morrison; Michelangelo Puliga; Alessandro Chessa; Massimo Riccaboni

  1. By: Tran, Tat Thanh; Zikos, Vasileios
    Abstract: We study how free trade agreements between countries and international R&D networks between firms emerge endogenously. The government of each country can initiate bilateral free trade agreements to abolish the import tariffs of other countries. Firms can decide whether and with whom to form R&D collaborations. We build a new model of double-layer networks where the network of free trade agreements is formed in the first layer, and the R&D network is formed in the second layer. Consistently with the stylized facts, we find that free trade agreements can promote international R&D collaboration between firms. Private incentives to form free trade agreements are aligned with societal ones. For R&D networks, by contrast, we identify a conflict between private and social incentives.
    Keywords: Free trade agreements, R&D collaboration, tariffs, innovation.
    JEL: D85 F10 L13 L20 O31
    Date: 2014–11–20
  2. By: Mattila, Juri; Seppälä, Timo
    Abstract: At the beginning of the 1990s, the Internet’s various fragmented information networks were combined into one integrated network of systems. As a result, the commercial utilization of the Internet boomed, creating com- pletely new business models and economic structures in the process. A similar reaction is now anticipated from the digitalization of industry and society at large. However, the main question is: “How can all the separately structured, isolated systems be fused into one seamless network of systems?” So far, the problem has mainly been addressed from the standpoint of centralized and decentralized system architectures. Our analysis shows, however, that completely new and innovative technological approaches, such as the blockchain technology, are emerging to address this problem. These new distributed architecture solu- tions may completely revolutionize the anticipated structures and business models of the digitalization current- ly in progress, as they allow machines to autonomously share much more than just data, e.g. computing power, storage capacity or even electric power. As a result, understanding digitalization in its full capacity requires a systems approach and a new kind of higher-level thinking on the scale of a network of systems.
    Keywords: digitalization, industrial Internet, platforms, blockchain
    JEL: L14 L15 L86 L96 O33
    Date: 2015–08–13
  3. By: Gorkem Bostanci (University of Pennsylvania); Kamil Yilmaz (Koc University)
    Abstract: We apply the Diebold-Yilmaz connectedness index methodology on sovereign credit default swaps (SCDSs) to estimate the network structure of global sovereign credit risk. In particular, using the elastic net estimation method, we separately estimate networks of daily SCDS returns and volatilities for 38 countries between 2009 and 2014. Our results reveal striking differences between the network structures of returns and volatilities. In SCDS return networks, developing and developed countries stand apart in two big clusters. In the case of the SCDS volatility networks, however, we observe regional clusters among emerging market countries along with the developed-country cluster. We also show that global factors are more important than domestic factors in the determination of SCDS returns and volatilities. Finally, emerging market countries are the key generators of connectedness of sovereign credit risk shocks while severely problematic countries as well as developed countries play relatively smaller roles.
    Keywords: Sovereign Credit Default Swaps, Sovereign Credit Risk, Systemic risk, Connectedness, Network Estimation, Lasso, Elastic Net, Vector Autoregression, Variance Decomposition.
    JEL: F34 G15 C32 G22 F36
    Date: 2015–08
  4. By: Arun G. Chandrasekhar; Horacio Larreguy; Juan Pablo Xandri
    Abstract: Agents often use noisy signals from their neighbors to update their beliefs about a state of the world. The effectiveness of social learning relies on the details of how agents aggregate information from others. There are two prominent models of information aggregation in networks: (1) Bayesian learning, where agents use Bayes' rule to assess the state of the world and (2) DeGroot learning, where agents instead consider a weighted average of their neighbors' previous period opinions or actions. Agents who engage in DeGroot learning often double-count information and may not converge in the long run. We conduct a lab experiment in the field with 665 subjects across 19 villages in Karnataka, India, designed to structurally test which model best describes social learning. Seven subjects were placed into a network with common knowledge of the network structure. Subjects attempted to learn the underlying (binary) state of the world, having received independent identically distributed signals in the first period. Thereafter, in each period, subjects made guesses about the state of the world, and these guesses were transmitted to their neighbors at the beginning of the following round. We structurally estimate a model of Bayesian learning, relaxing common knowledge of Bayesian rationality by allowing agents to have incomplete information as to whether others are Bayesian or DeGroot. Our estimates show that, despite the flexibility in modeling learning in these networks, agents are robustly best described by DeGroot-learning models wherein they take a simple majority of previous guesses in their neighborhood.
    JEL: C91 C92 C93 D83
    Date: 2015–08
  5. By: Mohamed Belhaj (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Frédéric Deroïan (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: A principal offers bilateral contracts to a set of agents organized in a network conveying synergies, in a context where agents' efforts are observable and where the principal's objective increases with the sum of efforts. We characterize optimal contracts as a function of agents' positions on the network. The analysis shows that contract enforceability is key to understand optimality. We also examine linear contracting and we analyze the situation where the principal is constrained to contract with a single agent on the network. Last, we extend this setting to network entry.
    Date: 2015–01
  6. By: Sonja Brangewitz (University of Paderborn); Claus-Jochen Haake (University of Paderborn); Philipp Moehlmeier (Bielefeld University)
    Abstract: We analyze the stability of networks when two intermediaries strategically form costly links to customers. We interpret these links as customer relationships that enable trade to sell a product. Equilibrium prices and equilibrium quantities on the output as well as on the input market are determined endogenously for a given network of customer relationships. We investigate in how far the substitutability of the intermediaries' products and the costs of link formation influence the intermediaries' equilibrium profits and thus have an impact on the incentives to strategically form relationships to customers. For networks with three customers we characterize locally stable networks, in particular existence is guaranteed for any degree of substitutability. Moreover for the special cases of perfect complements, independent products and perfect substitutes, local stability coincides with the stronger concept of Nash stability. Additionally, for networks with n customers we analyze stability regions for selected networks and determine their limits when n goes to infinity. It turns out that the shape of the stability regions for those networks does not significantly change compared to a setting with a small number of customers.
    Keywords: Network Formation, Product Differentiation, Oligopoly, Quantity Competition
    JEL: C70 D43 D85 L13
    Date: 2015–05
  7. By: Hannu Salonen (Department of Economics, University of Turku)
    Abstract: We investigate the cases when the Bonacich measures of strongly connected directed bipartite networks can be interpreted as a Nash equilibrium of a non-cooperative game. One such case is a two-person game such that the utility functions are bilinear, the matrices of these bilinear forms represent the network, and strategies have norm at most one. Another example is a two-person game with quadratic utility functions. A third example is an m + n person game with quadratic utilitity functions, where the matrices representing the network have dimension m × n. For connected directed bipartite networks we show that the Bonacich measures are unique and give a recursion formula for the computation of the measures. The Bonacich measures of such networks can be interpreted as a subgame perfect equilibrium path of an extensive form game with almost perfect information.
    Keywords: networks, influence measures, Nash equilibrium
    JEL: C71 D85
  8. By: NISHIMURA, Takeshi; OKADA, Akira; SHIRATA, Yasuhiro
    Abstract: Group formation is a fundamental activity in human society. Humans often exclude others from a group and divide the group benefit in a fair way only among group members. Such an allocation is called in-group fair. Does natural selection favor an in-group fair allocation? We investigate the evolution of fairness and group formation in a three-person Ultimatum Game (UG) in which the group value depends on its size. In a stochastic model of the frequency-dependent Moran process, natural selection favors the formation of a two-person subgroup in the low mutation limit if its group value exceeds a high proportion (0.7) of that of the largest group. Stochastic evolutionary game theory provides theoretical support to explain the behavior of human subjects in economic experiments of a three-person UG.
    Date: 2015–08
  9. By: Jacques Melitz
    Abstract: How far has English already spread? How much further can we expect it to go? In response to the first question, this chapter tries to identify the areas of life where English already serves as a lingua franca in the world (more or less) and those where the language faces sharp competition and does not threaten to marginalize the other major languages. The former areas of life are international safety, the internal business of international organizations, internal communication within the international news industry, international sports and science. The latter areas are the press, television, the internet, publishing and international trade. As to the second question, about the future prospects of English, the chapter argues that the advance of English will depend heavily on the motives to learn the other major languages in the world as well. Based on the empirical evidence, the same model applies to the incentives to learn English and these other languages. On the important topic of welfare, the cultural market is the single one where it is arguable that the progress of English has gone too far. English dominance in the song, the cinema and the best-seller is indeed extraordinary and difficult to reconcile with the evidence popular attachments to home languages, which is otherwise strong and apparent.
    Date: 2015
  10. By: Muriel Fadairo (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Cintya Lanchimba (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Josef Windsperger (University of Vienna [Vienna])
    Abstract: Multi-unit franchising (MUF) is a governance form inside franchising networks where the franchisor transfers to the franchisees the right to own and operate more than one outlet. While previous empirical literature has revealed various advantages of MUF as compared to single-unit franchising (SUF), we study the impact of this governance form on the network performance, taking into account different contexts. Our results from propensity score matching show that MUF leads to higher performance. However, non-parametric estimations highlight thresholds suggesting that a mix of SUF and MUF is a more efficient governance form than a pure MUF network.
    Date: 2015–03–09
  11. By: Yann Rébillé; Lionel Richefort
    Abstract: We model a bipartite network in which links connect agents with public goods. Agents play a voluntary contribution game in which they decide how much to contribute to each public good they are connected to. We show that the problem of finding a Nash equilibrium can be posed as a non-linear complementarity one. The existence of an equilibrium point is established for a wide class of individual preferences. We then find a simple sufficient condition, on network structure only, that guarantees the uniqueness of the equilibria, and provide an easy procedure for building networks that respects this condition.
    Date: 2014–10–15
  12. By: Zhen Zhu; Greg Morrison; Michelangelo Puliga; Alessandro Chessa; Massimo Riccaboni
    Abstract: International trade has been increasingly organized in the form of global value chains (GVCs) where different stages of production are located in different countries. This recent phenomenon has substantial consequences for both trade policy design at the national or regional level and business decision making at the firm level. In this paper, we provide a new method for comparing GVCs across countries and over time. First, we use the World Input-Output Database (WIOD) to construct both the upstream and downstream global value networks, where the nodes are individual sectors in different countries and the links are the value-added contribution relationships. Second, we introduce a network-based measure of node similarity to compare the GVCs between any pair of countries for each sector and each year available in the WIOD. Our network-based similarity is a better measure for node comparison than the existing ones because it takes into account all the direct and indirect relationships between country-sector pairs, is applicable to both directed and weighted networks with self-loops, and takes into account externally defined node attributes. As a result, our measure of similarity reveals the most intensive interactions among the GVCs across countries and over time. From 1995 to 2011, the average similarity between sectors and countries have clear increasing trends, which are temporarily interrupted by the recent economic crisis. This measure of the similarity of GVCs provides quantitative answers to important questions about dependency, sustainability, risk, and competition in the global production system.
    Date: 2015–08

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