nep-net New Economics Papers
on Network Economics
Issue of 2016‒06‒18
six papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Consumption Network Effects By De Giorgi, Giacomo; Frederiksen, Anders; Pistaferri, Luigi
  2. Financial Contagion in the Laboratory: Does Network Structure Matter? By John Duffy; Aikaterini Karadimitropoulou; Melanie Parravano
  3. Incentivizing Resilience in Financial Networks By Matt V. Leduc; Stefan Thurner
  4. Structure and Dynamics of the Global Financial Network By Thiago Christiano Silva; Sergio Rubens Stancato de Souza; Benjamin Miranda Tabak
  5. Reputational Concerns in Directed Search Markets with Adverse Selection By Elton Dusha
  6. A data driven network approach to rank countries production diversity and food specialization By Chengyi Tu; Joel Carr; Samir Suweis

  1. By: De Giorgi, Giacomo (Federal Reserve Bank of New York); Frederiksen, Anders (Aarhus University); Pistaferri, Luigi (Stanford University)
    Abstract: In this paper we study the relevance and mechanics of consumption network effects. We use long panel data on the entire Danish population to construct a measure of consumption based on administrative tax records, and define the peer groups in terms of workplace, occupation, education, and age. We then apply an IV strategy, and fixed effect models, to recover the effects. Our instruments arise naturally from the network structure and firms shocks. The estimated effects are statistically significant and relevant for policies as they generate non-negligible multiplier effects. Further, the results are consistent with a "Keeping-up" model.
    Keywords: consumption, networks, social multiplier, risk sharing
    JEL: E21 D12 D85
    Date: 2016–06
  2. By: John Duffy (Department of Economics, University of California-Irvine); Aikaterini Karadimitropoulou (School of Economics, University of East Anglia); Melanie Parravano (Business School, Newcastle University)
    Abstract: We design and report on laboratory experiments exploring the role of interbank network structure for the likelihood of a financial contagion. The laboratory provides us with the control necessary to precisely explore the role of different network configurations for the fragility of the financial system. Specifically, we study the likelihood of financial contagion in complete and incomplete networks of banks who are linked in terms of interbank deposits as in the model of Allen and Gale (2000). Subjects play the role of depositors who must decide whether or not to withdraw their funds from their bank. We find that financial contagions are possible under both network structures. While such contagions always occur under an incomplete interbank network structure, they are significantly less likely to occur under a complete interbank network structure where interbank linkages can effectively provide insurance against shocks to the system, and localize damage from the financial shock.
    Keywords: Contagion; Networks; Experiments; Bank runs,; Interbank seposits; Financial fragility
    JEL: C92 E44 G21
    Date: 2016–06
  3. By: Matt V. Leduc; Stefan Thurner
    Abstract: When banks extend loans to each other, they generate a negative externality in the form of systemic risk. They create a network of interbank exposures by which they expose other banks to potential insolvency cascades. In this paper, we show how a regulator can use information about the financial network to devise a transaction-specific tax based on a network centrality measure that captures systemic importance. Since different transactions have different impact on creating systemic risk, they are taxed differently. We call this tax a Systemic Risk Tax (SRT). We show that this SRT induces a unique equilibrium matching of lenders and borrowers that is systemic-risk efficient, i.e. it minimizes systemic risk given a certain transaction volume. On the other hand, we show that without this SRT multiple equilibrium matchings can exist and are generally inefficient. This allows the regulator to effectively `rewire' the equilibrium interbank network so as to make it more resilient to insolvency cascades, without sacrificing transaction volume. Moreover, we show that a standard financial transaction tax (e.g. a Tobin-like tax) has no impact on reshaping the equilibrium financial network because it taxes all transactions indiscriminately. A Tobin-like tax is indeed shown to have a limited effect on reducing systemic risk while it decreases transaction volume.
    Date: 2016–06
  4. By: Thiago Christiano Silva; Sergio Rubens Stancato de Souza; Benjamin Miranda Tabak
    Abstract: In this paper, we study the evolution of the network topology for the global financial market. We evaluate the level of diversification and participation of developed and emerging economies in cross-border exposures and find that the gross exposure network is dense, the vulnerability matrix is sparse, and the network's fragility changes over time. Prior to the financial crisis in 2008, the network was relatively fragile, whereas it became more resilient afterwards, showing a reduction in financial institutions risk appetite. Our results suggest that financial regulators should track down the network evolution in their systemic risk assessment
    Date: 2016–06
  5. By: Elton Dusha
    Abstract: This paper introduces reputation building in directed search with adverse selection. Seller types randomly determine the quality of the asset they hold, where both a seller's type and asset quality are private information. When an exchange occurs, the quality of the asset that a seller holds is revealed and the market updates its belief about a seller's type, which I refer to as reputation. Markets where sellers have a higher reputation have lower liquidity and higher prices. With reputational concerns, the downward liquidity distortions caused by adverse selection are exacerbated. Equilibrium selection is affected by the incentives sellers have to earn a higher reputation. Shocks to entry costs have larger effects when sellers can build a reputation through multiple matches with buyers. JEL classiffications: D82,G1. Key words: Keywords: directed search, adverse selection, reputation, liquidity.
    Date: 2015
  6. By: Chengyi Tu; Joel Carr; Samir Suweis
    Abstract: The easy access to large data sets has allowed for leveraging methodology in network physics and complexity science to disentangle patterns and processes directly from the data, leading to key insights in the behavior of systems. Here we use to country specific food production data to study binary and weighted topological properties of the bipartite country-food production matrix. This country-food production matrix can be: 1) transformed into overlap matrices which embed information regarding shared production of products among countries, and or shared countries for individual products, 2) identify subsets of countries which produce similar commodities or subsets of commodities shared by a given country allowing for visualization of correlations in large networks, and 3) used to rank country's fitness (the ability to produce a diverse array of products weighted on the type of food commodities) and food specialization (quantified on the number of countries producing that food product weighted on their fitness). Our results show that, on average, countries with high fitness producing highly specialized food commodities also produce low specialization goods, while nations with low fitness producing a small basket of diverse food products, typically produce low specialized food commodities.
    Date: 2016–06

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