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on Network Economics |
| By: | Syngjoo Choi; Edoardo Gallo; Shachar Kariv; |
| Abstract: | This chapter surveys experimental research on networks in economics. The first part considers experiments on games played on networks. The second part discusses experimental research on markets and networks. It concludes by identifying important directions for future research. |
| Keywords: | experiments, social networks, network games, markets, coordination, public goods, cooperation, social learning, communication, trading. |
| JEL: | C91 C92 D85 L14 Z13 |
| Date: | 2015–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1551&r=net |
| By: | Alexei Kireyev; Andrei Leonidov |
| Abstract: | The paper models international spillovers from a hypothetical drop of China’s imports as a result of China’s rebalancing of its growth model. A network-based model used in the paper allows capturing higher round network effects of the shock, which are largely unaccounted for in the existing literature. Such effects include direct spillovers from China on its trading partners, subsequent spillins among them, and spillbacks on China itself. The paper finds that the network effects most likely will be substantial, may amplify initial shock, and change the direction of its propagation. The impact on Asia and Pacific will be the strongest followed by the Middle East and Central Asia. The impact on sub-Saharan Africa would be noticeable only for some countries. Spillovers on Europe, including the Euro area, will be moderate, and spillovers on the Western Hemisphere, including the United States, would be very marginal. Metal and non-fuel commodity exporters may experience the largest negative impact. |
| Keywords: | Asia and Pacific;China, People's Republic of;Trade;shocks, spillover, spillin, spillback, network, gdp, revenue, demand, Neural Networks and Related Topics, Country and Industry Studies of Trade, Open Economy Macroeconomics, International Policy Coordination and Transmission, Forecasting and Simulation, and spillback, network., |
| Date: | 2016–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/51&r=net |
| By: | Marcin Dziubinski; Sanjeev Goyal; Adrien Vigier; |
| Abstract: | Conflict remains a central element in human interaction. Networks - social, economic and infrastructure - are a defining feature of society. The two intersect in a wide range of empirical contexts. This motivates the recent interest in conflict and networks.The aim of the survey is to present the general themes, provide a survey of then ascent research and point to a number of interesting open questions. |
| Date: | 2015–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1565&r=net |
| By: | Stefan Avdjiev; Elod Takats |
| Abstract: | We demonstrate that currency networks in cross-border bank lending have a significant impact on the size, distribution and direction of international monetary policy spillovers. Using the recently enhanced BIS international banking statistics, which simultaneously provide information on the lender, borrower and currency composition of cross-border bank claims, we map the major currency networks in international banking. Next, we show that during the 2013 Fed taper tantrum, exposure to dollar lending was associated with safe haven flows to the United States, virtually unchanged flow dynamics vis-à-vis other advanced economies, and strong outflows from emerging markets. Furthermore, this pattern was shaped by interbank lending rather than by lending to non-banks. |
| Keywords: | Currency networks, cross-border banking flows, international monetary policy spillovers |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:549&r=net |
| By: | Belik, Ivan (Dept. of Business and Management Science, Norwegian School of Economics); Jörnsten, Kurt (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Methods for leader’s detection and overthrow in networks are useful tools for decision-making in many real-life cases, such as criminal networks with hidden patterns or money laundering networks. In the given research, we represent the algorithms that detect and overthrow the most influential node to the weaker positions following the greedy method in terms of structural modifications. We employed the concept of Shapley value from the area of cooperative games to measure a node’s leadership and used it as the core of the developed leader’s overthrow algorithms. The approaches are illustrated based on the trivial network structures and tested on real-life networks. The results are represented in tabular and graphical formats. |
| Keywords: | Leadership; networks analysis; Shapley value; game theory |
| JEL: | C00 C60 C61 Z13 |
| Date: | 2016–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2016_001&r=net |
| By: | Julien Gagnon; Sanjeev Goyal; ; |
| Abstract: | The interaction between social structure and markets remains a central theme in the social sciences. In some instances, markets can build on and enhance social networks' economic role; in other contexts, markets appear to be in direct competition with social networks. The impact of markets on inequality and welfare is also varying: while markets can sometimes offer valuable outside options to marginalised individuals, in other situations only well connected and better off individuals can benefit from them. In this paper, our goal is to understand the economic mechanisms that can explain these different empirical patterns. We develop a simple model that combines social networks and a mix of network-exchange and market-exchange activities. The key to understanding the empirical patterns and phenomena lies in the relation between the two activities i.e., whether they are (strategic) complements or substitutes. Social connectedness facilitates the adoption of the market action if the two activities are complements; the converse is true in case of substitutes. Inequality in a social structure is typically reinforced by the market in case the two actions are complements; the converse holds true if they are substitutes. |
| Keywords: | Networks, substitutes and complements, Welfare. |
| JEL: | D62 D63 L14 O17 |
| Date: | 2015–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1549&r=net |
| By: | Diego Cerdeiro; Marcin Dziubinski; Sanjeev Goyal; |
| Abstract: | Individuals derive bene ts from their connections, but these may, at the same time, transmit external threats. Individuals therefore invest in security to protect themselves. However, the incentives to invest in security depend on their network exposures. We study the problem of designing a network that provides the right individual incentives. Motivated by cybersecurity, we rst study the situation where the threat to the network comes from an intelligent adversary. We show that, by choosing the right topology, the designer can bound the welfare costs of decentralized protection. Both over-investment as well as under-investment can occur depending on the costs of security. At low costs, over-protection is important: this is addressed by discon- necting the network into two unequal components and sacri cing some nodes. At high costs, under-protection becomes salient: it is addressed by disconnecting the network into equal components. Motivated by epidemiology, we then turn to the study of random attacks. The over-protection problem is no longer present, whereas under-protection problems is mitigated in a diametrically opposite way: namely, by creating dense networks that expose the individuals to the risk of contagion. |
| Keywords: | cybersecurity, epidemics, security choice, externalities. |
| Date: | 2015–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1547&r=net |
| By: | Muhammad, Nabeel; Léo-Paul, Dana |
| Abstract: | Through participatory observation and in-depth interviews with members of the Memon community, in Pakistan, this paper probes into how the collective efforts of a regional network can facilitate entrepreneurship, social enterprises and regional development. The setting is a developing country that is lacking a large-scale entrepreneurial culture. Despite caste differences, Memons throughout the Karachi region meet and share experiences with other Memon members of their network – including Memons from unlike castes. Within this regional network Memons help one another. They give preferential treatment to other Memons of their regional network and sometimes also to co-ethnics from other regional networks. Entrepreneurship is encouraged by a collective effort without suppressing individual goals; this extends the social embeddedness perspective of entrepreneurship allowing for a collective efficacy along a regional network, facilitating entrepreneurship among individuals. |
| Keywords: | collective efficacy, community, cultural capital, entrepreneurship, Memon, Pakistan, participatory observation, regional development, regional network |
| JEL: | I25 L26 L31 N0 Q01 R11 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:70120&r=net |
| By: | Itoh, Ryo; Nakajima, Kentaro |
| Abstract: | This study investigates how the structure of a supply chain network influences the FDI decisions of firms embedded in the network. We theoretically describe firms' FDI decisions through a coordination game of a fixed network with incomplete information. We show that the network effect in the equilibrium can be represented by Katz-Bonacich centrality. Firms with a larger Katz-Bonacich centrality than other firms are more likely to engage in FDI. We empirically test this prediction with disaggregated inter-firm transaction network data of 115,111 Japanese firms and confirm that the Katz-Bonacich centrality has a significantly positive, robust effect on firms' FDI engagements. |
| Keywords: | FDI, network game, supply chain, Katz-Bonacich centrality |
| JEL: | D20 D85 F23 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:remfce:49&r=net |
| By: | Pawe{\l} Smaga; Mateusz Wili\'nski; Piotr Ochnicki; Piotr Arendarski; Tomasz Gubiec |
| Abstract: | We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We construct a model where banks are allowed to use both the interbank and the securities markets to manage their liquidity demand and supply as driven by prudential requirements in a volatile environment. The network of interbank loans is dynamic and simulated every day. We show how only the intrasystem cash fluctuations, without any external shocks, may lead to systemic defaults, what may be a symptom of the self-organized criticality of the system. We also analyze the impact of different prudential regulations and market conditions on the interbank market resilience. We confirm that central bank's asset purchase programs, limiting the declines in government bond prices, can successfully stabilize bank's liquidity demand. The model can be used to analyze the interbank market impact of macroprudential tools. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1603.05142&r=net |
| By: | Kyu-Min Lee; Kwang-Il Goh |
| Abstract: | Many real-world complex systems across natural, social, and economical domains consist of manifold layers to form multiplex networks. The multiple network layers give rise to nonlinear effect for the emergent dynamics of systems. Especially, weak layers that can potentially play significant role in amplifying the vulnerability of multiplex networks might be shadowed in the aggregated single-layer network framework which indiscriminately accumulates all layers. Here we present a simple model of cascading failure on multiplex networks of weight-heterogeneous layers. By simulating the model on the multiplex network of international trades, we found that the multiplex model produces more catastrophic cascading failures which are the result of emergent collective effect of coupling layers, rather than the simple sum thereof. Therefore risks can be systematically underestimated in single-layer network analyses because the impact of weak layers can be overlooked. We anticipate that our simple theoretical study can contribute to further investigation and design of optimal risk-averse real-world complex systems. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1603.05181&r=net |
| By: | Jan Abrell (ETH Zürich, Switzerland); Hannes Weigt (University of Basel, Switzerland) |
| Abstract: | Electricity markets depend on upstream energy markets to supply the fuels needed for generation. Since these markets rely on networks, congestion in one can quickly produce changes in another. In this paper we develop a combined partial equilibrium market model which includes the interactions of natural gas and electricity networks. We apply the model to a stylized representation of Europe’s electricity and natural gas markets to illustrate the upstream and downstream feedback effects which are not obvious on first sight. We find that both congestion and loop-flow effects in electricity markets impact prices and quantities in markets located far from the initial cause of the market changes. |
| Keywords: | Electricity network, Natural gas network, Europe, MCP |
| JEL: | L94 L95 C63 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:16-238&r=net |
| By: | Paolo Giudici (Department of Economics and Management, University of Pavia); Peter Sarlin (Hanken School of Economics); Alessandro Spelta (Department of Economics and Finance, Catholic University Milan) |
| Abstract: | To capture systemic risk related to network structures, this paper introduces a measure that complements direct exposures with common exposures, as well as compares these to each other. Trying to address the interconnected nature of financial systems, researchers have recently proposed a range of approaches for assessing network structures. Much of the focus is on direct exposures or market-based estimated networks, yet little attention has been given to the multivariate nature of systemic risk, indirect exposures and overlapping portfolios. In this regard, we rely on correlation network models that tap into the multivariate network structure, as a viable means to assess common exposures and complement direct linkages. Using BIS data, we compare correlation networks with direct exposure networks based upon conventional network measures, as well as we provide an approach to aggregate these two components for a more encompassing measure of interconnectedness. |
| Keywords: | Bank of International Settlements data, Correlation networks, Exposure networks |
| JEL: | G01 C58 C63 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0118&r=net |
| By: | Angelo Antoci; Fabio Sabatini; Francesco Sarracino |
| Abstract: | We have developed an evolutionary game model, where agents can choose between two forms of social participation: interaction via online social networks and interaction by exclusive means of face-to-face encounters. We illustrate the societal dynamics that the model predicts, in light of the empirical evidence provided by previous literature. We then assess their welfare implications. We show that dynamics, starting from a world in which online social interaction is less gratifying than offline encounters, will lead to the extinction of the sub-population of online networks users, thereby making Facebook and alike disappear in the long run. Furthermore, we show that the higher the propensity for discrimination between the two sub-populations of socially active individuals, the greater the probability that individuals will ultimately segregate themselves, making society fall into a social poverty trap. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1603.05828&r=net |
| By: | Niaz Asadullah; Zaki Wahhaj |
| Abstract: | We investigate whether female early marriage is a conduit for the transmission of social norms, specifically norms relating to gender roles and rights within the household. We exploit differences in the age of onset of menarche between sisters as an exogenous source of variation in marriage age. This approach allows us to control for beliefs and attitudes that are transmitted from parents to children. We find that early marriage increases agreement with statements supportive of gender bias in the allocation of resources and traditional gender roles. The woman's own schooling, her husband's schooling, and her social network together account for, at most, one-third of the estimated effect, suggesting that the major pathway for norm transmission is the experience of early marriage itself. |
| Keywords: | Gender Roles, Social Norms, Schooling, Household Decision-Making |
| JEL: | J12 J16 Z10 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1602&r=net |
| By: | Kris James Mitchener; Gary Richardson |
| Abstract: | Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent. |
| JEL: | E44 G01 G21 L14 N22 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22074&r=net |
| By: | Vasco M. Carvalho; Nico Voigtländer; ; |
| Abstract: | The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized model of network formation. Producers direct their search for new inputs along vertical linkages, screening the network neighborhood of existing suppliers to identify potentially useful inputs. A subset of these is then adopted, following a tradeoff between the benefits from input variety and the costs of customizing new inputs. Guided by this framework, we document a novel stylized fact at both the sector and the firm level: producers are more likely to adopt inputs that are already used – directly or indirectly – by their current suppliers. In particular, using disaggregated input-output data, we show that initial network proximity of a sector in 1967 significantly increases the likelihood of adoption throughout the subsequent four decades. A one-standard deviation decrease in network distance is associated with an increase in the adoption probability by one third to one half. Similarly, U.S. firms are significantly more likely to develop new input linkages among their suppliers’ network neighborhood. Our results imply that the existing production network plays a crucial role in the diffusion of inputs and the evolution of technology. |
| Keywords: | Input adoption, directed network search, dynamics of production networks |
| JEL: | O33 C67 D57 L23 |
| Date: | 2015–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1550&r=net |