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on Network Economics |
| By: | Theresa Kuchler; Johannes Stroebel |
| Abstract: | We review an empirical literature that studies the role of social interactions in driving economic and financial decision making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This evidence shows, for example, that there are large peer effects in mortgage refinancing decisions and that individuals’ beliefs about the attractiveness of housing market investments are affected by the recent house price experiences of their friends. We also summarize the evidence that social interactions affect the stock market investments of both retail and professional investors as well as household financial decisions such as retirement savings, borrowing, and default. Along the way, we describe a number of easily accessible recent data sets for the study of social interactions in finance, including the “Social Connectedness Index,” which measures the frequency of Facebook friendship links across geographic regions. We conclude by outlining several promising directions for further research at the intersection of household finance and “social finance.” |
| Keywords: | social networks, peer effects, financial decision making, social dynamics, belief contagion |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8658&r=all |
| By: | Vasques Filho, Demival |
| Abstract: | I propose a theory of social structure that challenges the widely accepted role of preferential attachment and triadic closure as primary mechanisms of network formation. For this, I build upon Feld's concept of social circles, Breiger’s concept of the duality of actors and groups, and Hinde’s concept of interactions and relationships. The theory emphasizes that ties between actors arise and evolve according to social circles and social situations in which they participate, a notion straightforwardly modeled through two-mode and projected networks. Using recent results aided by analyses of empirical and artificial networks, I argue that structural properties such as tie strength, heterogeneity of popularity and strength among actors, clustering, community formation, and segregation emerge from homophily, jointly with overlap and social activity—mechanisms introduced in this study. The mechanisms form the two-mode network, and these structural properties naturally arise in the one-mode projection. The results show that social circle and social situation size distributions modulate network structures by interweaving with social activity distributions, and that overlap increases segregation from a network viewpoint. This theory’s implications are broad, affecting several social processes ranging from social cohesion, tolerance, and child development to the spread of infectious diseases. |
| Date: | 2020–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:5cyuq&r=all |
| By: | Moshe Babaioff; Yoav Kolumbus; Eyal Winter |
| Abstract: | We study a market of investments on networks, where each agent (vertex) can invest in any enterprise linked to him, and at the same time, raise capital for his firm own enterprise from other agents he is linked to. Failing to raise sufficient capital results with the firm defaulting, being unable to invest in others. Our main objective is to examine the role of collaterals in handling the strategic risk that can propagate to a systemic risk throughout the network in a cascade of defaults. We take a mechanism design approach and solve for the optimal scheme of collateral contracts that capital raisers offer their investors. These contracts aim at sustaining the efficient level of investment as a unique Nash equilibrium, while minimizing the total collateral. Our main results contrast the network environment with its non-network counterpart (where the sets of investors and capital raisers are disjoint). We show that for acyclic investment networks, the network environment does not necessitate any additional collaterals, and systemic risk can be fully handled by optimal bilateral collateral contracts between capital raisers and their investors. This is, unfortunately, not the case for cyclic investment networks. We show that bilateral contracting will not suffice to resolve systemic risk, and the market will need an external entity to design a global collateral scheme for all capital raisers. Furthermore, the minimum total collateral that will sustain the efficient level of investment as a unique equilibrium may be arbitrarily higher, even in simple cyclic investment networks, compared with its corresponding non-network environment. Additionally, we prove computational-complexity results, both for a single enterprise and for networks. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2011.06247&r=all |
| By: | Fittje, Jens; Wagner, Helmut |
| Abstract: | The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain vulnerable to the occurrence of large-scale default cascades at higher levels of connectivity than a decentralized network. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stopgaps for contagion, which makes the Chinese network relatively robust. This robustness persists even when a medium sized bank defaults. |
| Keywords: | Interbank Network,Financial Contagion,China's interbank market,Financial market stability,Complex networks,Network topography |
| JEL: | E44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc20:224605&r=all |
| By: | Roberto Antonietti; Giulia De Masi; Giorgio Ricchiuti; ; |
| Abstract: | Globalization has considerably increased the movement of people and goods around the world, which constitutes a key channel of viral infection. Increasingly close economic links between countries speeds up the transfer of goods and information, and the knock-on effect of economic crises, but also the transmission of diseases. Foreign direct investment (FDI), in particular, establishes clear ties between countries of origin and destination, and it is along these chains that contagious phenomena can unfold. In this paper, we investigate whether countries with more central positions in the global production network have higher COVID-19 infection and mortality rates. We merge data on EU-28 outward FDI with data on COVID-19 per capita infection and death rates to analyze their association with the topology of the FDI network. Our estimates reveal that countries most exposed to the COVID-19 outbreak are those characterized by a more central role in the global production network. This result is robust to the use of alternative measures of network centrality, and to the possible influence of the 2008 financial crisis on the structure of the global production network. We also find that exposure to the pandemic increases with the centrality of a country in the FDI network of certain industries, including business machinery and equipment, business services, real estate, tourism and transport. |
| Keywords: | Foreign direct investment, economic networks, centrality measurements, COVID-19, pandemic |
| JEL: | F23 D85 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:2054&r=all |
| By: | Badi H. Baltagi; Sophia Ding; Peter H. Egger |
| Abstract: | Many data situations require the consideration of network effects among the cross-sectional units of observation. In this paper, we present a generalized panel model which accounts for two features: (i) three types of network effects on the right-hand side of the model, namely through weighted dependent variable, weighted exogenous variables, as well as weighted error components, and (ii) higher-order network effects due to ex-ante unknown network-decay functions or the presence of multiplex (or multi-layer) networks among all of those. We outline the model, the basic assumptions, and present simulation results. |
| Keywords: | spatial and network interdependence, panel data, higher-order network effects |
| JEL: | C23 C33 C34 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8653&r=all |
| By: | Scandura, Alessandra; Bolzani, Daniela (University of Turin) |
| Abstract: | This paper investigates the importance of the network of collaborations with other firms, research institutions, and business associations as key drivers of innovation, providing a comparison between immigrant-owned firms and non-immigrant-owned firms. We hypothesise that the network of collaboration is more important for innovative activities of immigrant entrepreneurs than for natives, due to their migrant condition, and that immigrant entrepreneurs’ acculturation to the host country culture moderates the influence of such network. We test our hypotheses on a unique matched-pair sample of immigrant and native domestic entrepreneurs active in high-tech mainstream (non-ethnic) markets. Our results show that universities and research institutions along with business associations are more important for immigrant-owned companies; we further show that immigrant entrepreneurs’ acculturation to the host country culture acts as a substitute for interactions with business associations. These findings are highly relevant for the academic and policy discourses on the link between immigrant entrepreneurship and innovation in developed countries. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:202021&r=all |
| By: | Anne G. Balter; Nikolaus Schweizer; Juan C. Vera |
| Abstract: | This paper studies existence and uniqueness of equilibrium prices in a model of the banking sector in which banks trade contingent convertible bonds with stock price triggers among each other. This type of financial product was proposed as an instrument for stabilizing the global banking system after the financial crisis. Yet it was recognized early on that these products may create circularity problems in the definition of stock prices - even in the absence of trade. We find that if conversion thresholds are such that bond holders are indifferent about marginal conversions, there exists a unique equilibrium irrespective of the network structure. When thresholds are lower, existence of equilibrium breaks down while higher thresholds may lead to multiplicity of equilibria. Moreover, there are complex network effects. One bank's conversion may trigger further conversions - or prevent them, depending on the constellations of asset values and conversion triggers. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2011.06474&r=all |
| By: | Francesco Aiello (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Paola Cardamone (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Lidia Mannarino (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Valeria Pupo (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria) |
| Abstract: | Using a large sample of Italian small–medium-sized firms, this note analyses the effects of formal inter-firm cooperation on the performance of family firms (FFs). The study is based on the network contract (“Contratto di rete”) implemented in Italy in 2009. The results show that networks have a positive effect on FFs, while no conclusive evidence is found for non-family firms. Additionally, the advantages for southern FFs and for small firms are considerable. |
| Keywords: | family firms, formal business networks, performance |
| JEL: | G34 L24 L25 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:clb:wpaper:202007&r=all |
| By: | Xingchen Wan; Jie Yang; Slavi Marinov; Jan-Peter Calliess; Stefan Zohren; Xiaowen Dong |
| Abstract: | In an increasingly connected global market, news sentiment towards one company may not only indicate its own market performance, but can also be associated with a broader movement on the sentiment and performance of other companies from the same or even different sectors. In this paper, we apply NLP techniques to understand news sentiment of 87 companies among the most reported on Reuters for a period of seven years. We investigate the propagation of such sentiment in company networks and evaluate the associated market movements in terms of stock price and volatility. Our results suggest that, in certain sectors, strong media sentiment towards one company may indicate a significant change in media sentiment towards related companies measured as neighbours in a financial network constructed from news co-occurrence. Furthermore, there exists a weak but statistically significant association between strong media sentiment and abnormal market return as well as volatility. Such an association is more significant at the level of individual companies, but nevertheless remains visible at the level of sectors or groups of companies. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2011.06430&r=all |
| By: | David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Pauline Morault (CY Cergy Paris Université, France) |
| Abstract: | Using a new database of European academics, we provide a global view of the effect of the Protestant Reformation on the network of universities and on their individual importance within the network. A connection (edge) between two universities (nodes) is defined by the presence of the same scholar in both universities. We first show that the emergence of Protestantism is strongly associated with rising fragmentation. Dyadic regressions confirm that geography is important as well, but does not substitute for the effect of religion. Considering eigenvector centrality as a measure of the importance of nodes in the network, we find that becoming Protestant or being a newly founded Protestant university is associated with higher centrality. Finally, the number of publications from universities is strongly correlated with centrality, lending credence to the view that the loss of connectedness of the Southern European universities after the (Counter-)Reformation was key in triggering their scientific demise. |
| Keywords: | Upper-Tail Human Capital, Universities, Network, Centrality, Publications, Fragmentation |
| JEL: | N33 O15 I25 |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2020029&r=all |
| By: | Joan Costa-i-Font; Anna Nicińska |
| Abstract: | We study the effect of exposure to communism (EC), a political-economic regime based on collectivist planning, on preferences for family supports, which we refer to as ‘informal family insurance’. We exploit both cross-country and cohort variation in EC in a large sample of Central and Eastern European countries (CEEC). Against the backdrop that ‘communism gives rise to the abolition of the family’, we find robust evidence that EC strengthens the preference for family insurance which coexists with a stronger preference for social insurance. We find a six per cent increase in preferences for care to older parents and a four per cent increase in preferences for support to pre-school children and financial support to adult children. These effects are explained by the erosion of both generalized trust and the lower confidence in public institutions, suggesting that (raising uncertainty and adversity during) communism increased the demand for all types of available insurance. |
| Keywords: | informal family insurance, family networks, social insurance, interpersonal trust, confidence in institutions, Soviet communism, Eastern Europe |
| JEL: | Z10 P30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8685&r=all |
| By: | Frijters, Paul; Islam, Asad; Pakrashi, Debayan |
| Abstract: | We study the effect of random dormitory assignment in a tertiary level educational institution in India on students’ subsequent academic achievements. We examine the importance of interactions between the characteristics of the student and his peers for educational outcomes, including non-linear peer-effects and the importance of different socio-economic and geographical backgrounds. We find that peer ability effects are around one-third the size of the effects of one's own ability, and students from non-urban and non-English backgrounds do particularly better when assigned to higher-ability peers. We find that all groups of ability students gain from being matched to high-ability peers, but that this gain is highest for students who are themselves of higher-ability. Our results suggest peer effects are stronger in the first year in dorm. In terms of mechanisms, we find no evidence for effects of peers via mental health, life satisfaction, or risk attitudes. We observe that a roommate's study times is highly correlated with a student's own study times, but we see only a weak positive association between study habits and grades. |
| Keywords: | Ability; Education; Peer effects; Social class |
| JEL: | C90 I23 |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100870&r=all |
| By: | Eife, Thomas |
| Abstract: | The shale revolution is gradually transforming the industrial structure of the United States. This paper quantifies these changes in a model in which industries are linked by productivity linkages. In this framework, productivity gains in one industry may spill over to other industries. For 2015 (the most recent data available), we find that the shale revolution raised US relative wages by around 0.84 percent, whereas Mexican and Canadian wages declined by 1.12 and 1.43 percent, respectively. Judging by countries’ ability to sell goods to the US, China is the main beneficiary of the shale revolution with increased US exports of more than $14 billion (7 percent) in 2015. At the same time, the US automobile industry lost sales of more than $65 billion (almost 10 percent) because of the shale revolution. |
| Keywords: | structural change; shale revolution; industry linkages; Ricardian trade; oil and gas production; Strukturwandel |
| Date: | 2020–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0694&r=all |
| By: | Bernhard Christopher Dannemann (University of Oldenburg, Department of Economics) |
| Abstract: | This paper applies recent spatial regression techniques in peer effects estimation to a sample of33coun-tries in the IAE’s TIMSS 2015 study in order to quantify the gender achievement gap in eighth grademathematics. Based on an education production function setting and controlling for the mediating influ-ences of student-, parent-, teacher-, and school-level factors, a significant, but small gender achievementgap amounting to10%of a country-level standard deviation is confirmed in the standard linear model.I model endogenous and exogenous peer effects based on the workhorse linear-in-means model as well ason homophily-based dyadic relations between students, both with controls for group unobservables. Theresults show that the effect size increases to12-14%, depending on the underlying socio-matrix. How-ever, the partitioned impacts suggest even larger effects when considering spillovers within the classroom.These could amount to as much as38%of a standard deviation, depending on the underlying dyadic peerweights, with the linear-in-means model possibly overstating the magnitude of classroom externalities. |
| Keywords: | Gender Gap, Education Production Function, Human Capital, Peer Effects |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:old:dpaper:433&r=all |