nep-net New Economics Papers
on Network Economics
Issue of 2016‒12‒04
seven papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Long-range growth: economic development in the global network of air links By Filipe Campante; David Yanagizawa-Drott
  2. Social networks and the intention to migrate By Miriam Manchin; Sultan Orazbayev
  3. Contagion, spillover and interdependence By Rigobon, Roberto
  4. Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence By Tom Hamami
  5. Production Networks By Kenan Huremovic; Fernando Vega-Redondo
  6. Decentralized Clearing in Financial Networks (RM/16/005-revised-) By Csoka, Péter; Herings, P. Jean-Jacques
  7. Network Quantile Autoregression By Xuening Zhu; Wolfgang K. Härdle; Weining Wang; Hangsheng Wang

  1. By: Filipe Campante; David Yanagizawa-Drott
    Abstract: We study the impact of international long-distance flights on the global spatial allocation of economic activity. To identify causal effects, we exploit variation due to regulatory and technological constraints which give rise to a discontinuity in connectedness between cities at a distance of 6000 miles. We show that these air links have a positive effect on local economic activity, as captured by satellite-measured night lights. To shed light on how air links shape economic outcomes, we first present evidence of positive externalities in the global network of air links: connections induce further connections. We then find that air links increase business links, showing that the movement of people fosters the movement of capital. In particular, this is driven mostly by capital flowing from high-income to middle-income (but not low-income) countries. Taken together, our results suggest that increasing interconnectedness generates economic activity at the local level by inducing links between businesses, but also gives rise to increased spatial inequality locally, and potentially globally.
    Keywords: Globalization, air travel, connections, economic activity, local development, cities, business links, FDI, convergence, spatial inequality
    JEL: F15 F21 F23 F63 O11 O18 O19 O47 R11 R12 R40
    Date: 2016–11
  2. By: Miriam Manchin (University College London); Sultan Orazbayev (University College London)
    Abstract: Using a large survey spanning several years and more than 150 countries, we examine the importance of social networks in influencing individuals’ intention to migrate domestically or internationally. We distinguish close social networks (composed of friends and family) and broad social networks (composed of same-country residents with intention to migrate), both at home and abroad. We find that social networks abroad are important driving forces of migration intentions, more important than work-related aspects or income. In addition, we find that close social networks abroad with remittances matter significantly more than those without remittances as the individuals become more educated, indicating that networks might work through different channels for individuals with different level of education. On other hand, we find that having stronger close social networks at home reduces the likelihood of migration intentions.
    Keywords: intention to migrate, social networks, local migration, international migration, remittances
    JEL: F22 F24 R23 O15
    Date: 2016–12–01
  3. By: Rigobon, Roberto
    Abstract: This paper reviews the empirical literature on international spillovers and contagion. Theoretical models of spillover and contagion imply that the reduced form observable variables suffer from two possible sources of bias: endogeneity and omitted variables. These econometric problems in combination with the heteroskedasticity that plagues the data produces time varying biases. Several empirical methodologies are evaluated from this perspective: non-parametric techniques such as correlations and principal components, as well as parametric methods such as OLS, VAR, event studies, ARCH, Non-linear regressions, etc. The paper concludes that there is no single technique that can solve the full fledge problem and discusses three methodologies that can partially address some of the questions in the literature. JEL Classification: C30, F32, C10
    Keywords: contagion, heteroskedasticity, identification
    Date: 2016–11
  4. By: Tom Hamami
    Abstract: I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre-existing game franchises. Additionally, I find that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.
    JEL: L14 L15 D21 D22
    Date: 2016–11–29
  5. By: Kenan Huremovic (AMSE - Aix-Marseille School of Economics - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - EHESS - École des hautes études en sciences sociales); Fernando Vega-Redondo (Bocconi University & IGIER)
    Abstract: In this paper, we model the economy as a production network of competitive firms that interact in a general-equilibrium setup. First, we find that, at the unique Walrasian equilibrium, the profit of each active firm is proportional to (a suitable generalization of) its Bonacich centrality. We also determine consumer welfare at equilibrium and characterize efficient networks. Then we proceed to conduct a broad range of comparative-static analyses. These include the effect on profits and welfare of: (a) distortions (e.g. tax/subsidies) imposed on the whole economy or specific firms; (b) structural changes such as the addition of links and the elimination of nodes; (c) productivity and preference changes. We discover that the induced effects are in general nonmonotone, depend on global network features, and impinge on each sector depending on the pattern of incentralities displayed by its input providers and output users. Furthermore, the inter-sector “linkages” underlying these effects can usually be decomposed – following the heuristic dichotomy proposed by Hirschman (1958) – into a forward (push) component and a backward (pull) one. Finally, we undertake some preliminary analysis of firm dynamics and illustrate that, when evaluating policies of support and shock mitigation from a dynamic viewpoint, the reliance on strict market-based criteria can be quite misleading in terms of social welfare.
    Keywords: production,networks,distortions,centrality,profit
    Date: 2016–09
  6. By: Csoka, Péter (corvinus university of budapest); Herings, P. Jean-Jacques (General Economics 1 (Micro))
    Abstract: We consider a situation in which agents have mutual claims on each other, summarized in a liability matrix. Agents' assets might be insufficient to satisfy their liabilities leading to defaults. In case of default, bankruptcy rules are used to specify the way agents are going to be rationed. A clearing payment matrix is a payment matrix consistent with the prevailing bankruptcy rules that satisisfies limited liability and priority of creditors. Since clearing payment matrices and the corresponding values of equity are not uniquely determined, we provide bounds on the possible levels equity can take. Unlike the existing literature, which studies centralized clearing procedures, we introduce a large class of decentralized clearing processes. We show the convergence of any such process in finitely many iterations to the least clearing payment matrix. When the unit of account is sufficiently small, all decentralized clearing processes lead essentially to the same value of equity as a centralized clearing procedure. As a policy implication, it is not necessary to collect and process all the sensitive data of all the agents simultaneously and run a centralized clearing procedure.
    JEL: C71 G10
    Date: 2016
  7. By: Xuening Zhu; Wolfgang K. Härdle; Weining Wang; Hangsheng Wang
    Abstract: It is a challenging task to understand the complex dependency structures in an ultra-high dimensional network, especially when one concentrates on the tail dependency. To tackle this problem, we consider a network quantile autoregres- sion model (NQAR) to characterize the dynamic quantile behavior in a complex system. In particular, we relate responses to its connected nodes and node spe- ci c characteristics in a quantile autoregression process. A minimum contrast estimation approach for the NQAR model is introduced, and the asymptotic properties are studied. Finally, we demonstrate the usage of our model by in- vestigating the nancial contagions in the Chinese stock market accounting for shared ownership of companies.
    JEL: C12
    Date: 2016–11

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