nep-net New Economics Papers
on Network Economics
Issue of 2017‒10‒15
three papers chosen by
Pedro CL Souza
Pontifícia Universidade Católica do Rio de Janeiro

  1. Contagion in stable networks By Spiros Bougheas
  2. The Swing Voter's Curse in Social Networks By Mechtenberg, Lydia; Büchel, Berno
  3. R&D Investments under Endogenous Cluster Formation By Dawid, Herbert; Hellmann, Tim

  1. By: Spiros Bougheas
    Abstract: We study the formation of networks in environments where agents derive benefits from other agents directly linked to them but suffer losses through contagion when any agent on a path connected to them is hit by a shock. We first consider networks with undirected links (e.g. epidemics, underground resistance organizations, trade networks) where we find that stable networks are comprised of completely connected disjoint subnetworks. Then, we consider networks with directed links and we find that the completely connected network is stable, although, its exact structure, and thus contagion implications, is sensitive to parameter values for costs and benefits. Lastly, we introduce aggregate externalities (e.g. fire sales for the case of financial networks) and we find that stable networks can be asymmetric, connected but not completely connected, thus capturing the main features of inter-industry and financial networks.
    Keywords: network formation, stability, contagion
    Date: 2017
  2. By: Mechtenberg, Lydia; Büchel, Berno
    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 that communication can undermine effciency of the vote and hence reduce welfare in a common interest setting. We test the model in a lab experiment and find strong support for the predicted effects.
    JEL: D72 D83 D85 C91
    Date: 2017
  3. By: Dawid, Herbert; Hellmann, Tim
    Abstract: We study investments in R&D and the formation of R&D clusters of firms which are competitors in the market. Firms first decide on long-term R&D investment, then form research clusters according to the unanimity game, and finally compete in quantities. Equilibria with no-investment might co-exist with equilibria where a large fraction of firms invest in R&D. Firms tend to over-invest compared to a scenario where research clusters are ex-ante fixed and also compared to the welfare optimum.
    JEL: C71 C72 L13 O30
    Date: 2017

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