nep-net New Economics Papers
on Network Economics
Issue of 2017‒09‒03
three papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. The swing voter's curse in social networks By Buechel, Berno; Mechtenberg, Lydia
  2. P2P Lending: Information Externalities, Social Networks and Loans' Substitution By Faia, Ester; Paiella, Monica
  3. Significant ties: Identifying relationship lending in temporal interbank networks By Teruyoshi Kobayashi; Taro Takaguchi

  1. By: Buechel, Berno; Mechtenberg, Lydia
    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 find 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: 2017–07–10
  2. By: Faia, Ester; Paiella, Monica
    Abstract: Despite the lack of delegated monitor and of collateral guarantees P2P lending platforms exhibit relatively low loan and delinquency rates. The adverse selection is indeed mitigated by a new screening technology (information processing through machine learning) that provides costless public signals. Using data from Prosper and Lending Club we show that loans' spreads, proxing asymmetric information, decline with credit scores or hard information indicators and with indications from "group ties" (soft information from social networks). Also an increase in the risk of bank run in the traditional banking sector increases participation in the P2P markets and reduces their rates (substitution effect). We rationalize this evidence with a dynamic general equilibrium model where lenders and borrowers choose between traditional bank services (subject to the risk of bank runs and early liquidation) and P2P markets (which clear at a pooling price due to asymmetric information, but where public signals facilitate screening).
    Keywords: liquidity shocks; peer-to-peer lending; pooling equilibria; signals; value of information
    JEL: G11 G23
    Date: 2017–08
  3. By: Teruyoshi Kobayashi; Taro Takaguchi
    Abstract: Relationship lending is conventionally interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify a lending relationship while simple statistics such as the frequency and volume of loans have been frequently used. Here, we propose the concept of a significant tie to statistically evaluate the strength of a relationship. Application of the proposed method to the Italian interbank networks reveals that the percentage of relationship lending among all bilateral trades is consistently around 20%-30% and that their trading properties are distinct from those of transactional trades.
    Date: 2017–08

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