|
on Network Economics |
| By: | Roland Pongou (Department of Economics, University of Ottawa); Roberto Serrano (Department of Economics, Brown University) |
| Abstract: | We study the long-run stability of trade networks in a two-sided economy. Each agent desires relationships with the other side, but having multiple partners is costly. This cost-benefit tradeoff results in each agent having a single-peaked utility over the number of partners-the volume of trade-, the peak being greater for agents on one side than those on the other. We propose a stochastic matching process in which self-interested agents form and sever links over time. Links can be added or deleted, sometimes simultaneously by a single agent. While the unperturbed process yields each pairwise stable network as an absorbing state, stochastic stability in two perturbed processes provides a significant refinement, leading respectively to egalitarian and anti-egalitarian pairwise stable networks. These distinct network configurations have implications for the concentration on each side of the market of a random information shock, which may affect structurally identical economies differently. The analysis captures stylized facts, related to herd behavior, market fragmentation, concentration and contagion asymmetry, in several two-sided economies. It also rationalizes long-run population imbalance between the two sides of certain buyer-seller markets. |
| Keywords: | Two-sided economies, trade networks, pairwise stability, stochastic stability, herd behavior, fragmentation, concentration, contagion asymmetry |
| JEL: | C73 D01 D03 D85 F16 J00 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1602e&r=net |
| By: | Monica Billio (University Ca' Foscari of Venice - Department of Economics); Lorenzo Frattarolo (University Ca' Foscari of Venice - Department of Economics); Hayette Gatfaoui (IESEG School of Management (LEM) et Centre d'Economie de la Sorbonne); Philippe de Peretti (Centre d'Economie de la Sorbonne) |
| Abstract: | In this paper, we analyze the dynamic relationships between ten stock exchanges of the euro zone using Granger causal networks. Using returns for which we allow the variance to follow a Markov-Switching GARCH or a Changing-Point GARCH, we first show that over different periods, the topology of the network is highly unstable. In particular, over very recent years, dynamic relationships vanish. Then, expanding on this idea, we analyze patterns of information transmission. Using rolling windows to analyze the topologies of the network in terms of clustering, we show that the nodes' state changes continually, and that the system exhibits a high degree of flickering in information transmission. During periods of flickering, the system also exhibits desynchronization in the information transmission process. These periods do precede tipping points or phase transitions on the market, especially before the global financial crisis, and can thus be used as early warnings of phase transitions. To our knowledge, this is the first time that flickering clusters are identified on financial markets, and that flickering is related to phase transitions |
| Keywords: | Causal Network; Topology; Clustering; Flickering; Desynchronisation; Phase transitions |
| JEL: | G17 C18 C52 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:16046&r=net |
| By: | John Duffy (University of California, Irvine); Aikaterini Karadimitropoulou (University of East Anglia); Melanie Parravano (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 deposits, financial fragility |
| JEL: | C92 E44 G21 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:16-11&r=net |
| By: | Wolfgang Kerber (University of Marburg); Julia Wendel (University of Marburg) |
| Abstract: | Transnational regulatory networks play important roles in multi-level regulatory regimes, as e.g, the European Union. In this paper we analyze the role of regulatory networks from the perspective of the economic theory of legal federalism. Often sophisticated intermediate institutional solutions between pure centralisation and pure decentralisation can help to solve complex tradeoff problems between the benefits and problems of centralised and decentralised solutions. Drawing upon the insights of the political science literature about regulatory networks, we show that regulatory networks might be an institutional innovation that can fulfill a number of functions (rule-making, best practices and policylearning, effective enforcement, conflict resolution) that might allow for a better intermediate solution between centralised and decentralised regulatory powers. We apply our approach in three case studies to very different regulatory networks, the Body of European Regulators for Electronic Communication (BEREC), the European Competition Network (ECN), and the International Competition Network (ICN). An important result is that regulatory networks might not only be a temporary phenomenon but part of long-term institutional solutions in European multi-level regulatory regimes. |
| Keywords: | Regulatory networks, multi-level regulatory systems, legal federalism, EU regulation |
| JEL: | K2 F55 H11 H77 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201613&r=net |
| By: | Pandit, Parthe; Kulkarni, Ankur |
| Abstract: | Recently Bramoulle and Kranton presented a model for the provision of public goods over a network and showed the existence of a class of Nash equilibria called specialized equilibria wherein some agents exert maximum effort while other agents free ride. We examine the efficiency, effort and cost of specialized equilibria in comparison to other equilibria. Our main results show that the welfare of a particular specialized equilibrium approaches the maximum welfare amongst all equilibria as the concavity of the benefit function tends to unity. For forest networks a similar result also holds as the concavity approaches zero. Moreover, without any such concavity conditions, there exists for any network a specialized equilibrium that requires the maximum weighted effort amongst all equilibria. When the network is a forest, a specialized equilibrium also incurs the minimum total cost amongst all equilibria. For well-covered forest networks we show that all welfare maximizing equilibria are specialized and all equilibria incur the same total cost. Thus we argue that specialized equilibria may be considered as a refinement of the equilibrium of the public goods game. We show several results on the structure and efficiency of equilibria that highlight the role of dependants in the network. |
| Keywords: | Network games; public goods; specialized equilibria; independent sets; linear complementarity problems |
| JEL: | C7 C72 |
| Date: | 2016–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72425&r=net |