nep-net New Economics Papers
on Network Economics
Issue of 2019‒10‒14
four papers chosen by
Pedro CL Souza
University of Warwick

  1. Homophily in Social Media and News Polarization By Luis Abreu; Doh-Shin Jeon
  2. Constrained Credit Networks By Geoffrey Ramseyer; Ashish Goel; David Mazieres
  3. Information Acquisition and Diffusion in Markets By Atayev, Atabek; Janssen, Maarten
  4. Drug Diffusion Through Peer Networks: The Influence of Industry Payments By Leila Agha; Dan Zeltzer

  1. By: Luis Abreu (Toulouse School of Economics, 21 Allée de Brienne, 31015 Toulouse Cedex 6, France); Doh-Shin Jeon (Toulouse School of Economics, 21 Allée de Brienne, 31015 Toulouse Cedex 6, France)
    Abstract: We study how media bias is affected by the structure of social networks on social media. We consider an ad-financed media firm which chooses the ideological location of its news and targets consumers who can share the news with their followers on an online social media. After studying how a targeted consumer’s incentive to share the news is shaped by the network structure of her followers, we study the firm’s strategy to maximize the breadth of news sharing and find that when the mean (respectively, the variance) of followers’ ideological locations is a convex (respectively, concave) function of a direct consumer’s location, the media firm is likely to produce polarized news. The analysis of the case in which consumers are uniformly distributed reveals that news polarization is more likely to occur as the degree of homophily increases. We also find that media competition makes polarization more likely.
    Keywords: media bias; online social networks; homophily; sharing, polarization
    JEL: D21 D85 L82
    Date: 2019–09
  2. By: Geoffrey Ramseyer; Ashish Goel; David Mazieres
    Abstract: The Credit Network is a model for transactions across a network of agents based on bilateral trust between agents. Credit Networks capture many aspects of traditional currencies as well as new virtual currencies and payment mechanisms. In a credit network, if an agent defaults, every other node that trusted it is vulnerable to loss. Alternatively, in a cryptocurrency context, securing a payment channel requires putting capital into escrow to guarantee against default. In this paper, we introduce constraints that bound the total amount of loss that the rest of the network can suffer if an agent (or a set of agents) were to default. We show that these constraints preserve two important aspects of credit networks. The first is route independence: if there are multiple trust-paths over which a transaction can clear, then it does not matter which one is used. The second pertains to liquidity (i.e. the fraction of transactions that succeed): given a symmetric transaction matrix, any achievable vector of net "credit balances" of the agents is equally likely. This technical property allows us to extend the original analysis of liquidity in credit networks to the constrained case. Surprisingly, aggregate borrowing constraints greatly simplify the analysis and achieve the optimal tradeoff between liquidity and the number of trust-edges.
    Date: 2019–10
  3. By: Atayev, Atabek; Janssen, Maarten
    Abstract: Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their "friends" and less information acquisition via active search. Free-riding also has an important positive effect, however, in that consumers that do not actively search themselves are more likely to be able to compare prices before purchase, imposing competitive pressure on firms. We show how market prices depend on the characteristics of the network and on search cost. For example, if the search cost becomes small, price dispersion disappears, while the price level converges to the monopoly level, implying that expected prices are decreasing for small enough search cost. More connected societies have lower market prices, while price dispersion remains even in fully connected societies.
    Keywords: consumer search; Social Networks; Word-of-Mouth Communication
    JEL: D43 D83 D85
    Date: 2019–10
  4. By: Leila Agha; Dan Zeltzer
    Abstract: Pharmaceutical companies' marketing efforts primarily target physicians, often through individual detailing that entails monetary or in-kind transfers. We study how peer influence broadens these payments' reach beyond the directly paid physicians. Combining Medicare prescriptions and Open Payments data for anticoagulant drugs, we document that pharmaceutical payments target highly connected physicians. We exploit within-physician variation in payment exposure over time to estimate the payments' influence. Unlike the paid doctor, peer physicians are not directly selected by the pharmaceutical company on the basis of their expertise or enthusiasm for the target drug. Yet, following a large payment, prescriptions for the target drug increase both by the paid physician and the paid physician's peers. These peer effects influence doctors who share patients with the paid physician, even when the two doctors are not affiliated with the same group practice. We find no evidence that payments reduce prescriptions among high-risk patients. Over the period 2014--2016, physician payments associated with anticoagulant marketing increased the drugs' prescription volume by 23 percent, with peer spillovers contributing a quarter of the increase.
    JEL: I11 O33
    Date: 2019–10

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