nep-net New Economics Papers
on Network Economics
Issue of 2017‒02‒12
six 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 Campante, Filipe R.; Yanagizawa-Drott, David
  2. Spatial Pricing in Ride-Sharing Networks By Bimpikis, Kostas; Candogan, Ozan; Saban, Daniela
  3. The Size of the Core in Assignment Markets By Kanoria, Yash; Saban, Daniela; Sethuraman, Jay
  4. The Swing Voter's Curse in Social Networks By Berno Buechel; Lydia Mechtenberg
  5. Liquidity Risk in Sequential Trading Networks By Kariv, Shachar; Kotowski, Maciej H.; Leister, C. Matthew
  6. Social Media and Political Donations: New Technology and Incumbency Advantage in the United States By Petrova, Maria; Sen, Ananya; Yildirim, Pinar

  1. By: Campante, Filipe R. (Harvard University); Yanagizawa-Drott, David (University of Zurich)
    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.
    JEL: F15 F21 F23 F63 O11 O18 O19
    Date: 2016–09
  2. By: Bimpikis, Kostas (Stanford University); Candogan, Ozan (Chicago University); Saban, Daniela (Stanford University)
    Abstract: We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Riders at different locations are heterogeneous in terms of their destination preferences, as captured by the demand pattern of the underlying network. Drivers decide whether, when, and where to provide service so as to maximize their expected earnings given the platform's pricing policy. Our findings highlight the impact of the demand pattern of the underlying network on the platform's optimal profits and aggregate consumer surplus. In particular, we establish that both profits and consumer surplus are maximized when the demand pattern is "balanced" across the network's locations. In addition, we show that profits and consumer surplus are monotonic with the balancedness of the demand pattern (as formalized by the pattern's structural properties). Furthermore, we explore the widely adopted compensation scheme that allocates a constant fraction of the fare to drivers and identify a class of networks for which it can implement the optimal equilibrium outcome. However, we also showcase that generally this scheme leads to significantly lower profits for the platform than the optimal pricing policy especially in the presence of heterogeneity among the demand patterns in different locations. Together, these results illustrate the value of accounting for the demand pattern across a network's locations when designing the platform's pricing policy, and complement the existing focus on the benefits of dynamic (surge) pricing to deal with demand fluctuations over time.
    Date: 2016–11
  3. By: Kanoria, Yash (Columbia University); Saban, Daniela (Stanford University); Sethuraman, Jay (Columbia University)
    Abstract: We consider a two-sided assignment market with agent types and a stochastic structure, similar to models used in empirical studies. We characterize the size of the core in such markets. Each agent has a randomly drawn productivity with respect to each type of agent on the other side. The value generated from a match between a pair of agents is the sum of the two productivity terms, each of which depends only on the type (but not the identity) of one of the agents, and a third deterministic term driven by the pair of types. We prove, under reasonable assumptions, that keeping the number of agent types fixed, the relative size of the core vanishes rapidly as the number of agents grows. Numerical experiments confirm that the core is typically small. Our results provide justification for the typical assumption of a unique core outcome in such markets, that is close to a limit point. Further, our results suggest that, given market composition, the wages are almost uniquely determined in equilibrium.
    Date: 2016–09
  4. By: Berno Buechel (University of St. Gallen and Liechtenstein-Institute); Lydia Mechtenberg (University of Hamburg)
    Abstract: We study private communication in social networks prior to a majority vote on two alternative policies. Some (or all) agents receive a private imperfect signal about which policy is correct. They can, but need not, recommend a policy to their neighbors in the social network prior to the vote. We show theoretically and empirically that communication can undermine efficiency of the vote and hence reduce welfare in a common interest setting. Both efficiency and existence of fully informative equilibria in which vote recommendations are always truthfully given and followed hinge on the structure of the communication network. If some voters have distinctly larger audiences than others, their neighbors should not follow their vote recommendation; however, they may do so in equilibrium. We test the model in a lab experiment and strong support for the comparative-statics and, more generally, for the importance of the network structure for voting behavior.
    Keywords: Strategic Voting, Social Networks, Swing Voter's Curse, Information Aggregation
    JEL: D72 D83 D85 C91
    Date: 2017–01
  5. By: Kariv, Shachar (University of CA, Berkeley); Kotowski, Maciej H. (Harvard University); Leister, C. Matthew (Monash University)
    Abstract: This paper develops a model of intermediated exchange with budget-constrained traders who are embedded in a trading network. An experimental investigation confirms the theory's baseline predictions. Traders adopt monotone strategies with higher-budget intermediaries offering to pay more for tradable assets. Traders closer to the final consumer in the network experience systematically greater payoffs due to lessened strategic uncertainty. While private budget constraints inject uncertainty into the trading environment, they also serve as a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.
    JEL: C91 D44 D85 G10 L14
    Date: 2016–10
  6. By: Petrova, Maria; Sen, Ananya; Yildirim, Pinar
    Abstract: Can new technologies increase political competition? We study the impact of adopting Twitter on campaign contributions received by politicians. For identification, we compare donations just before and just after politicians open Twitter accounts in regions with high and low levels of Twitter penetration, controlling for politician-month fixed effects. We estimate that opening a Twitter account amounts to an increase of at least 2-3% in donations per campaign. This effect is stronger for new politicians, who were never elected before, for donations coming from new donors, for politicians who tweet more informatively, and for politicians from regions with lower newspaper circulation.
    Date: 2017–01

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