nep-net New Economics Papers
on Network Economics
Issue of 2015‒12‒08
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Privacy, Trust and Social Network Formation By Alexia Gaudeul; Caterina Giannetti
  2. Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks By Leon Rincon, C.E.; Machado, C.; Sarmiento Paipilla, N.M.
  3. Endogenous Market Making and Network Formation By Briana Chang; Shengxing Zhang
  4. Disentangling bipartite and core-periphery structure in financial networks By Paolo Barucca; Fabrizio Lillo
  5. Networks of value added trade By João Amador; Sónia Cabral
  6. Structural Analysis of Value Creation in Software Service Platforms By Netsanet Haile; Jorn Altmann
  7. The Optimal Defense of Network Connectivity By Dan Kovenock; Brian Roberson
  8. Going Green : Framing Effects in a Dynamic Coordination Game By Gerlagh, Reyer; van der Heijden, Eline
  9. The economic value of local social networks By Frank Ethridge; Maryann Feldman; Tom Kemeny; Ted Zoller

  1. By: Alexia Gaudeul (Department of Economics, Georg-August-Universität Göttingen); Caterina Giannetti (Jena Graduate School Human Behaviour in Social and Economic Change)
    Abstract: We study in the laboratory the impact of private information revelation on the selection of partners when forming individual networks. Our experiment combines a "network game" and a "public-good game". In the network game, individuals decide with whom to form a link with, while in the public-good game they decide whether or not to contribute. The variations in our treatments allow us to identify the effect of revealing one's name on the probability of link formation. Our main result suggests that privacy mechanisms affect partner selection and the consequent structure of the network: when individuals reveal their real name, their individual networks are smaller but their profits are higher. This indicates that the privacy costs of revealing personal information are compensated by more productive links.
    Keywords: privacy, social networks, public goods, trust
    JEL: D12 D85
    Date: 2015–12–01
  2. By: Leon Rincon, C.E. (Tilburg University, Center For Economic Research); Machado, C.; Sarmiento Paipilla, N.M. (Tilburg University, Center For Economic Research)
    Abstract: We model the allocation of central bank liquidity among the participants of the interbank market by using network analysis’ metrics. Our analytical framework considers that a super-spreader simultaneously excels at receiving (borrowing) and distributing (lending) central bank’s liquidity for the whole network, as measured by financial institutions’ hub centrality and authority centrality, respectively. Evidence suggests that the Colombian interbank funds market exhibits an inhomogeneous and hierarchical network structure, akin to a core-periphery organization, in which a few financial institutions fulfill the role of central bank’s liquidity super-spreaders. Our results concur with evidence from other interbank markets and other financial networks regarding the flaws of traditional direct financial contagion models based on homogeneous and non-hierarchical networks. Also, concurrent with literature on lending relationships in interbank markets, we confirm that the probability of being a super-spreader is mainly determined by financial institutions’ size. We provide additional elements for the implementation of monetary policy and for safeguarding financial stability.
    Keywords: interbank; liquidity; monetary policy; financial stability; networks; super-spreader; central bank
    JEL: E5 G2 L14
    Date: 2015
  3. By: Briana Chang (School of Business, University of Wisconsin–Madison;); Shengxing Zhang (Department of Economics, London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: This paper proposes a theory of intermediation in which intermediaries emerge endogenously as the choice of agents. In contrast to the previous trading models based on random matching or exogenous networks, we allow traders to explicitly choose their trading partners as well as the number of trading links in a dynamic framework. We show that traders with higher trading needs optimally choose to match with traders with lower needs for trade and they build fewer links in equilibrium. As a result, traders with the least trading need turn out to be the most connected and have the highest gross trade volume. The model therefore endogenously generates a core-periphery trading network that we often observe: a financial architecture that involves a small number of large, interconnected institutions. We use this framework to study bid-ask spreads, trading volume, asset allocation and implications on systemic risk.
    Keywords: Over-the-Counter Market, Trading Network, Matching, Intermediation
    JEL: C70 G1 G20
    Date: 2015–11
  4. By: Paolo Barucca; Fabrizio Lillo
    Abstract: A growing number of systems are represented as networks whose architecture conveys significant information and determines many of their properties. Examples of network architecture include modular, bipartite, and core-periphery structures. However inferring the network structure is a non trivial task and can depend sometimes on the chosen null model. Here we propose a method for classifying network structures and ranking its nodes in a statistically well-grounded fashion. The method is based on the use of Belief Propagation for learning through Entropy Maximization on both the Stochastic Block Model (SBM) and the degree-corrected Stochastic Block Model (dcSBM). As a specific application we show how the combined use of the two ensembles -SBM and dcSBM- allows to disentangle the bipartite and the core-periphery structure in the case of the e-MID interbank network. Specifically we find that, taking into account the degree, this interbank network is better described by a bipartite structure, while using the SBM the core-periphery structure emerges only when data are aggregated for more than a week.
    Date: 2015–11
  5. By: João Amador; Sónia Cabral
    Abstract: Global Value Chains (GVCs) became the paradigm for the production of most goods and services around the world. Therefore, linkages among countries can no longer be adequately assessed through standard bilateral gross trade flows and new methods of analysis are needed. In this paper, we apply visualisation tools and measures of network analysis on value-added trade flows in order to understand the nature and dynamics of GVCs. The paper uses data on the bilateral foreign value added in exports from the World Input-Output Database (WIOD) for the period 1995-2011 and, in each period, the GVC is represented as a directed network of nodes (countries) and edges (value added flows). The analysis is extended beyond total trade flows with a view to discussing the distinct roles of goods and services in GVCs. Moreover, the differences between Germany, the US, China and Russia as major suppliers of value added in GVCs are also examined.
    JEL: C67 D85 F14 F15
    Date: 2015
  6. By: Netsanet Haile (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: As software service platforms grow in number of users and variety of service offerings, it raises the question of how this phenomenon impacts the value obtained by users. This paper identifies system usability, service variety, and personal connectivity to be the major determinants that contribute to the value offered to users on mobile software service platforms. A structural equation model, which is based on utility theory, technology acceptance theory, and the theory of network externalities, has been constructed from seven observed constructs, reflecting the three determinants and the user value. The lower bound of user value is estimated through the user’s willingness-to-pay for services and the user’s willingness to spend time on using services. For the validation, a co-variance-based structural equation analysis has been conducted on online survey data of 210 users of mobile service platforms (e.g., Android, iOS). The results show that the number of services used and the number of active user connections were found to be the strongest constructs explaining user value. Perceived usefulness did not explain user value as much. In total, they can explain 49% of the value that the user receives from the platform. The implication of this result is that users’ value from a software service platform cannot be explained by the technology acceptance model itself. Instead, an approach that as used in this research of integrating network externality theory, utility theory, and technology acceptance theory is necessary.
    Keywords: Software Ecosystem, Network Effects, TAM, Utility Theory, Value Creation, Mobile Software Service Platforms.
    JEL: C13 C42 C51 C88 D46 L86 M15 M21 O32
    Date: 2015–11
  7. By: Dan Kovenock (Economic Science Institute, Argyros School of Business and Economics, Chapman University); Brian Roberson (Purdue University, Department of Economics, Krannert School of Management)
    Abstract: Maintaining the security of critical infrastructure networks is vital for a modern economy. This paper examines a game-theoretic model of attack and defense of a network in which the defender's objective is to maintain network connectivity and the attacker's objective is to destroy a set of nodes that disconnects the network. The con ict at each node is modeled as a contest in which the player that allocates the higher level of force wins the node. Although there are multiple mixed-strategy equilibria, we characterize correlation structures in the players' multivariate joint distributions of force across nodes that arise in all equilibria. For example, in all equilibria the attacker utilizes a stochastic `guerrilla warfare' strategy in which a single random [minimal] set of nodes that disconnects the network is attacked.
    Keywords: Allocation Game, Asymmetric Con ict, Attack and Defense, Colonel Blotto Game, Network Connectivity, Weakest-Link, Best-Shot
    JEL: C7 D74
    Date: 2015
  8. By: Gerlagh, Reyer (Tilburg University, Center For Economic Research); van der Heijden, Eline (Tilburg University, Center For Economic Research)
    Abstract: We experimentally study decision-making in a novel dynamic coordination game. The game captures features of a transition between externality networks. Groups consisting of three subjects start in a stable benchmark equilibrium with network externality. Over seven rounds, they can transit to an alternative stable equilibrium based on the other network. The alternative network has higher payoffs, but the transition is slow and costly. Coordination is required to implement the transition while minimizing costs.<br/>In the experiment, the game is repeated five times, which enables groups to learn to coordinate over time. We compare a neutral language treatment with a ‘green framing’ treatment, in which meaningful context is added to the instructions. We find the green framing to significantly increase the number of profitable transitions, but also to inhibit the learning from past experiences, and thus it reduces coherence of strategies. Consequently, payoffs in both treatments are similar even though the green framing results in twice as many transitions.<br/>In the context of environmental policy, the experiment suggests general support for ‘going green’, but we also find evidence for anchoring of beliefs by green framing; proponents and opponents stick to their initial strategies.
    Keywords: cost of transition; lab experiment; dynamic stag hunt game; framing
    JEL: C73 C92 O44
    Date: 2015
  9. By: Frank Ethridge; Maryann Feldman; Tom Kemeny; Ted Zoller
    Abstract: The idea that local social capital yields economic benefits is fundamental to theories of agglomeration, and central to claims about the virtues of cities. However, this claim has not been evaluated using methods that permit more confident statements about causality. This paper examines what happens to firms that become affiliated with a highly-connected local individual or “dealmaker.” We adopt a quasi-experimental approach, combining difference-in-differences and propensity score matching to address selection and identification challenges. The results indicate that firms who link to highly-connected local dealmakers are rewarded with substantial gains in employment and sales when compared to a control group.
    Keywords: cities; economic development; social networks; social capital
    JEL: L14 O12 O18 R11
    Date: 2015–01

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