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on Network Economics |
| By: | Lux, Thomas |
| Abstract: | This paper provides a review of recent research on the structure of interbank relations and theoretical models developed to assess the contagious potential of shocks (default of single units) via the interbank network. The empirical literature has established a set of stylized facts that includes a fat-tailed distribution of the number of banks, disassortativity of credit links and a pronounced persistence of existing links over time. These topological features correspond to the existence of money center banks, the importance of relationship banking and the self-organization of the interbank market into a core-periphery structure. Models designed to replicate these topological features exhibit on average more contagious potential than baseline models for the generation of random networks (such as the Erdös-Renyi or preferential attachment mechanisms) that do not share the stylized facts. Combining different channels of contagion such as interbank exposures, portfolio overlaps and common exposure to non-financial borrowers, one typically finds that different contagion channels interact in a distinctly nonlinear way. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:62&r=net |
| By: | Natalia BORZINO (University of East Anglia); Enrique FATAS (University of East Anglia); Emmanuel PETERLE (CRESE EA3190 Univ. Bourgogne Franche-Comté) |
| Abstract: | We conduct a controlled laboratory experiment to investigate trust and trustworthiness in a networked investment game in which two senders interact with a receiver. We investigate to what extent senders and receivers comply with an exogenous and non-binding recommendation. We also manipulate the level of information available to senders regarding receiver’s behavior in the network. We compare a baseline treatment in which senders are only informed about the actions and outcomes of their own investment games to two information treatments. In the reputation treatment, senders receive ex ante information regarding the average amount returned by the receiver in the previous period. In the transparency treatment, each sender receives ex post additional information regarding the returning decision of the receiver to the other sender in the network. Across all treatments and for both senders and receivers, the non-binding rule has a significant and positive impact on individual decisions. Providing senders with additional information regarding receiver’s behavior affects trust at the individual level, but leads to mixed results at the aggregate level. Our findings suggest that reputation building, as well as allowing for social comparison could be efficient ways for receivers to improve trust within networks. |
| Keywords: | Experimental economics, Taxation, Trust, Information, Investment game. |
| JEL: | C72 C91 D03 H26 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2016-04&r=net |
| By: | Carlos León (Banco de la República de Colombia); Miguel Sarmiento (Banco de la República de Colombia) |
| Abstract: | We examine how liquidity is exchanged in different types of Colombian money market networks (i.e. secured, unsecured, and central bank’s repo networks). Our examination first measures and analyzes the centralization of money market networks. Afterwards, based on a simple network optimization problem between financial institutions’ mutual distances and number of connections, we examine the tradeoff between liquidity risk and counterparty risk. Empirical evidence suggests that different types of money market networks diverge in their centralization, and in how they balance counterparty risk and liquidity risk. We confirm an inverse and significant relation between counterparty risk and liquidity risk, which differs across markets in an intuitive manner. We find evidence of liquidity cross-underinsurance in secured and unsecured money markets, but they differ in their nature. Central bank’s role in mitigating liquidity risk is also supported by our results. Classification JEL:D85, E58, L14 |
| Keywords: | liquidity risk, counterparty risk, network, centralization, money market |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:936&r=net |
| By: | Matteo Barigozzi; Marc Hallin |
| Abstract: | In this paper, we define weighted directed networks for large panels of financial time series wherethe edges and the associated weights are reflecting the dynamic conditional correlation structureof the panel. Those networks produce a most informative picture of the interconnections amongthe various series in the panel. In particular, we are combining this network-based analysis and ageneral dynamic factor decomposition in a study of the volatilities of the stocks of the Standard&Poor’s 100 index over the period 2000-2013. This approach allows us to decompose the panelinto two components which represent the two main sources of variation of financial time series:common or market shocks, and the stock-specific or idiosyncratic ones. While the common components,driven by market shocks, are related to the non-diversifiable or systematic components ofrisk, the idiosyncratic components show important interdependencies which are nicely describedthrough network structures. Those networks shed some light on the contagion phenomenons associatedwith financial crises, and help assessing how systemic a given firm is likely to be. We showhow to estimate them by combining dynamic principal components and sparse VAR techniques.The results provide evidence of high positive intra-sectoral and lower, but nevertheless quite important,negative inter-sectoral, dependencies, the Energy and Financials sectors being the mostinterconnected ones. In particular, the Financials stocks appear to be the most central vertices inthe network, making them the main source of contagion. |
| Keywords: | Time Series; Dynamic Factor Models; Network Analysis; Volatility; Systemic Risk |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/218748&r=net |
| By: | Syngjoo Choi; Andrea Galeotti; Sanjeev Goyal; |
| Abstract: | We propose a model of posted prices in networks. The model maps traditional concepts of market power, competition and double marginalization into networks, allowing for the study of pricing in complex structures of intermediation such as supply chains, transportation and communication networks and financial brokerage. We provide a complete characterization of equilibrium prices. Our experiments complement our theoretical work and point to node criticality as an organizing principle for understanding pricing, efficiency and the division of surplus in networked markets. |
| Keywords: | Intermediation, competition, market power, double marginalization. |
| JEL: | C70 C71 C91 C92 D40 |
| Date: | 2014–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1457&r=net |
| By: | Olga Dziubaniuk (Åbo Akademi University) |
| Abstract: | This empirical research contributes to the understanding of how actions of networking companies are going beyond their networks picture and impact on society. For the structural analysis of this phenomenon the concept of ethical embeddedness is applied which assumes that business organizations are embedded in a broader social network and have mutual interconnection of their functions. The research proposes that embeddedness of businesses may be exemplified via ethicality of responsibilities that specific business actors employ. Therefore, the research adopts Industrial network approach to investigate ethical embeddedness of business organizations in society and their impact on its current and future development. The “social face†of industrial markets has being extensively discussed in the works of K. Polanyi (e.g. 1968) who collaborated on the concept of social embeddedness of the economic interaction. Granovetter (1985) has developed this idea even further by emphasizing that companies interact in social environment and the social networking is not dividable form the business networks. The concept of ethical embeddedness is adopted for this study (Lindfelt & Törnroos, 2006) which can be explained as ethical values in relations to economic values that are created in a particular business network.Empirically, this framed as a case-study research is grounded on the interviewed representatives of R&D organizations engaged in medical devices R&D activities. They excellently exemplify ethical considerations of embedded ethical responsibilities toward society as their general aim along profit achievement is to improve social welfare. Additionally, those organizations are highly dependent on the network of business partners, governmental and other institutional actors which make them perfectly suitable for this research. The research question of this study is articulated as the following: how embedded ethicality of businesses impact on interconnection between society and business organizations? In general, conceptually, this research paper contributes to the development of the concept of ethical embeddedness and to Industrial network approach theory. From the practical perspective, it aims to illustrate the attractiveness of investment in development technologies that are able to improve social welfare; the ethical value embedded in business activities and its impact on society and business partnership. Current interest to the ethical issues requires filling a research gap in lacking empirical evidences of ethical and, consequently, socially significant managerial practices executed in business networks that influence on general public good. |
| Keywords: | Business ethics, social responsibility, business networks, industrial marketing, ethical embeddedness |
| JEL: | L14 O32 M14 |
| URL: | http://d.repec.org/n?u=RePEc:sek:ibmpro:3406018&r=net |
| By: | Salonen Hannu (Department of Economics, University of Turku) |
| Abstract: | An undirected connected bimodal network has two Bonacich measures quantifying the centrality of the nodes. We show that the product of Bonacich measures of an undirected bimodal network may be viewed as a product measure that is nearest (w.r.t. Euclidean norm) to the matrix representing the network. A directed bimodal network has four Bonacich measures, two inflow and two outflow measures. Given directed strongly connected bimodal network and its Bonacich inflow (or outflow) measures, there is undirected bimodal network with the same Bonacich measures. So Bonacich measures of directed bimodal network can also be viewed as minimum norm solutions. |
| Keywords: | networks, influence measures, impact factors |
| JEL: | C71 D85 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp106&r=net |
| By: | Yuanzhu Lu (China Economics and Management Academy, Central University of Finance and Economics, Beijing, China); Sougata Poddar (Department of Economics, Faculty of Business and Law, Auckland University of Technology) |
| Abstract: | In many product markets, impact of network externality plays an important role to affect the overall quality of a product. However, the degree or the strength of network externality is assumed as a parameter in most of the literature. We propose a model of vertical product differentiation with two competing firms where the strength of network externality is endogenized as a strategic choice of the high quality firm. We show how the equilibrium market structure and market coverage depend on the cost of choosing the network strength and on the relative quality difference of the competing products. We also show that the relationship between the optimal level of network externalities and the relative quality differences of the products can be monotonic or non-monotonic. |
| Keywords: | Vertical product differentiation, Network externality, Market structure, Market coverage, Investment cost |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:aut:wpaper:201503&r=net |
| By: | Ilse Lindenlaub; Anja Prummer; ; |
| Abstract: | This paper documents gender differences in social ties and develops a theory that links them to disparities in men’s and women’s labor market performance. Men’s networks lead to better access to information, women’s to higher peer pressure. Both affect effort in a model of teams, each beneficial in different environments. We find that information is particularly valuable under high uncertainty, whereas peer pressure is more valuable in the opposite case. We therefore expect men to outperform women in jobs that are characterized by high earnings uncertainty, such as the financial sector or film industry – in line with the evidence rationale. |
| Keywords: | Networks, Peer Pressure, Gender, Labor Market Outcomes |
| JEL: | D85 Z13 J16 |
| Date: | 2014–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1461&r=net |