nep-net New Economics Papers
on Network Economics
Issue of 2016‒08‒21
four papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Cascading Failures in Production Networks By David Baqaee
  2. Social Networks and Housing Market Investments By Johannes Stroebel
  3. Emergent organization in a model market By Avinash Chand Yadav; Kaustubh Manchanda; Ramakrishna Ramaswamy
  4. Small Energy Markets, Scattered Networks and Regulatory Reforms: The Australian Experience By Rabindra Nepal; Flavio Menezes

  1. By: David Baqaee (London School of Economics and Political Science)
    Abstract: I show how the extensive margin of firm entry and exit can greatly amplify idiosyncratic shocks in an economy with a production network. I show that input-output models with entry and exit behave very differently to models without this margin. In particular, in such models, sales provide a very poor measure of the systemic importance of firms or industries. I derive a new notion of systemic influence called exit centrality that captures how exits in one industry will affect equilibrium output. I show that exit centrality need not be related to an industry’s sales, size, or prices. Unlike the relevant notions of centrality in standard input-output models, exit centrality depends on the industry’s role as both a supplier and as a consumer of inputs, as well as market structure. I show that, unlike competitive models, vanishingly small industries can have arbitrarily large effects on equilibrium outcomes. In this sense, the network can amplify shocks in a way that standard input-output models cannot.
    Date: 2016
  2. By: Johannes Stroebel (New York University)
    Abstract: We document that the house price experience within individuals' social networks affect their housing market expectations, and through this channel have large effects on individual and aggregate housing market outcomes
    Date: 2016
  3. By: Avinash Chand Yadav; Kaustubh Manchanda; Ramakrishna Ramaswamy
    Abstract: We study the collective behavior of interacting agents in a simple model of market economics originally introduced by N{\o}rrelykke and Bak. A general theoretical framework for interacting traders on an arbitrary network is presented, with the interaction consisting of buying (namely, consumption) and selling (namely, production) of commodities. Extremal dynamics is introduced by having the agent with least profit in the market readjust prices, causing the market to self--organize. We study this model market on regular lattices in two--dimension as well as on random complex networks; in the critical state fluctuations in an activity signal exhibit properties that are characteristic of avalanches observed in models of self-organized criticality, and these can be described by power--law distributions.
    Date: 2016–08
  4. By: Rabindra Nepal (CDU Business School, Charles Darwin University); Flavio Menezes (School of Economics, University of Queensland)
    Abstract: The global experience with regulatory reforms that promote competition in small electricity markets, especially characterized by scattered networks serving low-density load, is limited. We contribute to this knowledge and policy gap by analyzing the reform experience and policy options in Australia’s Northern Territory (NT) market. This market underwent vertical separation and it is now regulated under the national regulatory framework. A virtual wholesale market was created as a stepping stone towards a fuller wholesale market. We find that the new regulatory reforms have improved wholesale market transparency and accountability. However, the anticipated prospect of lower energy prices to consumers will not materialize in the absence of effective regulation and more ambitious changes in the sector. More private participation in electricity generation and retail in the short-term and intra-regional market integration in the medium term may be appropriate policy options as the demand for electricity grows. Market integration can facilitate and not hinder the development of renewable energy. However, we conclude that reforms in smaller electricity markets such a NT should be geared towards meeting the environmental and decarbonization objectives from the early stages given the potential for tropical leadership in off-grid supply of renewable energy.
    Keywords: International reforms, small markets, renewable energy
    JEL: L94 L51 Q40
    Date: 2016–07–29

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