nep-net New Economics Papers
on Network Economics
Issue of 2017‒03‒05
five papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Peer Effects in Computer Assisted Learning: Evidence from a Randomized Experiment By Marcel Fafchamps; Di Mo
  2. Optimal Transport Networks in Spatial Equilibrium By Pablo D. Fajgelbaum; Edouard Schaal
  3. Competing with Big Data By Prüfer, Jens; Schottmuller, C.
  4. Contests on Networks By David Michael Rietzke; Alexander Matros
  5. Obligations with Physical Delivery in a Multi-Layered Financial Network By Zachary Feinstein

  1. By: Marcel Fafchamps; Di Mo
    Abstract: We conduct a large scale RCT to investigate peer effects in computer assisted learning (CAL). Identification of peer effects relies on three levels of randomization. It is already known that CAL improves math test scores in Chinese rural schools. We find that paired treatment improves the beneficial effects of treatment for poor performers when they are paired with high performers. We test whether CAL treatment reduces the dispersion in math scores relative to controls, and we find statistically significant evidence that it does. We also demonstrate that the beneficial effects of CAL could potentially be strengthened, both in terms of average effect and in terms of reduced dispersion, if weak students are systematically paired with strong students during treatment. To our knowledge, this is the first time that a school intervention has been identified in which peer effects unambiguously help weak students catch up with the rest of the class without imposing any learning cost on other students.
    JEL: I24 I25 O15
    Date: 2017–02
  2. By: Pablo D. Fajgelbaum; Edouard Schaal
    Abstract: We develop a framework to study optimal transport networks in general equilibrium spatial models. We model a general neoclassical economy with multiple goods and factors in which arbitrarily many locations are arranged on a graph. Goods must be shipped through linked locations, and transport costs depend on congestion and on the infrastructure in each link, giving rise to an optimal transport problem in general equilibrium. The framework nests neoclassical trade models, such as Armington or Hecksher-Ohlin, and allows for labor mobility. The globally optimal transport network is the solution to a social planner’s problem of building infrastructure in each link. We provide conditions such that this problem is globally convex, guaranteeing its numerical tractability. We also study and implement cases with increasing returns to transport technologies in which global convexity fails. We match the model to data on actual road networks and economic activity at high spatial resolution across 25 European countries, and then compute the optimal expansion and reallocation of current roads within each country. We find larger gains from road expansion and larger losses from misallocation of current roads in lower-income countries. The optimal expansion of current road networks reduces regional inequalities.
    JEL: F11 O18 R13
    Date: 2017–02
  3. By: Prüfer, Jens (Tilburg University, Center For Economic Research); Schottmuller, C. (Tilburg University, Center For Economic Research)
    Abstract: This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information.
    Keywords: big data; datafication; data-driven indirect network effects; dynamic competition; regulation
    JEL: D43 D92 L13 L43 L86
    Date: 2017
  4. By: David Michael Rietzke; Alexander Matros
    Abstract: We develop a model of contests on networks. Each player is "connected" to a set of contests, and exerts a single effort to increase the probability of winning each contest to which she is connected. We characterize equilibria under both the Tullock and all-pay auction contest success functions (CSFs), and show that many well-known results from the contest literature can be obtained by varying the structure of the network. We also obtain a new exclusion result: We show that, under both CSFs, equilibrium total effort may be higher when one player is excluded from the network. This finding contrasts the existing literature, which limits findings of this sort to the all-pay auction CSF. Our framework has a broad range of applications, including research and development, advertising, and research funding.
    Keywords: Network Games, Contests, Bipartite Graph, Tullock Contest, All-pay Auction
    JEL: C72 D70 D85
    Date: 2017
  5. By: Zachary Feinstein
    Abstract: This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets. In so doing, we develop a multi-layered financial network that extends the single network of \cite{EN01}. In particular, we develop a financial contagion model with fire sales that allows institutions to both buy and sell assets to cover their liabilities and act as utility maximizers. We also emphasize the value of this general framework in studying a dynamic or multiple maturity setting for financial contagion. We prove that, under standard assumptions, equilibrium portfolio holdings and market prices exist which clear the multi-layered financial system. However, these clearing solutions are not unique in general. We extend the existence results to consider monotonicity, uniqueness, and sensitivity results under fixed exchange rates between assets. We further provide mathematical formulations for regulatory and utility functions satisfying the necessary conditions for these existence and uniqueness results. We demonstrate the value of our model through illustrative numerical case studies. In particular, we study a counterfactual scenario on the event that Greece re-instituted the drachma on a dataset from the European Banking Authority.
    Date: 2017–02

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