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on Network Economics |
| By: | Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Rithvik Rao |
| Abstract: | Consider a coordination game played on a network, where agents prefer taking actions closer to those of their neighbors and to their own ideal points in action space. We explore how the welfare outcomes of a coordination game depend on network structure and the distribution of ideal points throughout the network. To this end, we imagine a benevolent or adversarial planner who intervenes, at a cost, to change ideal points in order to maximize or minimize utilitarian welfare subject to a constraint. A complete characterization of optimal interventions is obtained by decomposing interventions into principal components of the network's adjacency matrix. Welfare is most sensitive to interventions proportional to the last principal component, which focus on local disagreement. A welfare-maximizing planner optimally works to reduce local disagreement, bringing the ideal points of neighbors closer together, whereas a malevolent adversary optimally drives neighbors' ideal points apart to decrease welfare. Such welfare-maximizing/minimizing interventions are very different from ones that would be done to change some traditional measures of discord, such as the cross-sectional variation of equilibrium actions. In fact, an adversary sowing disagreement to maximize her impact on welfare will minimize her impact on global variation in equilibrium actions, underscoring a tension between improving welfare and increasing global cohesion of equilibrium behavior. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.13309&r=all |
| By: | Humlum, Maria Knoth (Aarhus University); Thorsager, Mette (VIVE - The Danish Centre for Applied Social Science) |
| Abstract: | Using detailed Danish administrative data covering the entire population of students entering higher education in the period 1985 to 2010, we investigate the importance of a student's peers in higher education for the decision to drop out. We use high school GPA as a predetermined measure of student ability and idiosyncratic variation in peer composition across cohorts within the same education and institution. Our findings suggest that peer ability is an important determinant of students' drop out decisions as well as later labor market outcomes. Overall, we find that a one standard deviation increase in peers' high school GPA reduces the probability of dropping out by 4.6 percentage points. This number masks considerable heterogeneity by level and field of study. Allowing for a more flexible specification, we find that low quality peers have adverse effects on the probability of dropping out while high quality peers have beneficial effects. These effects are more pronounced for lower ability students. |
| Keywords: | dropout, peer effects, peer quality, higher education |
| JEL: | I21 I24 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14136&r=all |
| By: | Manuela Pedio |
| Abstract: | The Great Financial Crisis of 2008 – 2009 has raised the attention of policy-makers and researchers about the interconnectedness among the volatility of the returns of financial assets as a potential source of risk that extends beyond the usual changes in correlations and include transmission channels that operate through the higher order co-moments of returns. In this paper, we investigate whether a newly developed, forward-looking measure of volatility spillover risk based on option implied volatilities shows any predictive power for stock returns. We also compare the predictive performance of this measure with that of the volatility spillover index proposed by Diebold and Yilmaz (2008, 2012), which is based on realized, backward-looking volatilities instead. While both measures show evidence of in-sample predictive power, only the option-implied measure is able to produce out-of-sample forecasts that outperform a simple historical mean benchmark. |
| Keywords: | connectedness, volatility networks, implied volatility, realized volatility, equity return predictability, spillover risk |
| JEL: | G12 G17 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20154&r=all |
| By: | Arnab Bhattacharjee; Sean Holly; Jan Ditzen |
| Abstract: | We provide a way to represent spatial and temporal equilibria in terms of error correction models in a panel setting. This requires potentially two different processes for spatial or network dynamics, both of which can be expressed in terms of spatial weights matrices. The first captures strong cross-sectional dependence, so that a spatial difference, suitably defined, is weakly cross-section dependent (granular) but can be nonstationary. The second is a conventional weights matrix that captures short-run spatio-temporal dynamics as stationary and granular processes. In large samples, cross-section averages serve the first purpose and we propose the mean group, common correlated effects estimator together with multiple testing of cross-correlations to provide the short-run spatial weights. We apply this model to the 324 local authorities of England, and show that our approach is useful for modelling weak and strong cross-section dependence, together with partial adjustments to two long-run equilibrium relationships and short-run spatio-temporal dynamics. This exercise provides new insights on the (spatial) long run relationship between house prices and income in the UK. |
| Keywords: | Spatio-temporal dynamics, Error Correction Models, Weak and strong cross sectional dependence |
| JEL: | C21 C22 C23 R3 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:526&r=all |
| By: | Encarnacion Algaba (Escuela Superior de Ingenieros); Rene van den Brink (Vrije Universiteit Amsterdam) |
| Abstract: | Agents participating in different kind of organizations, usually take different positions in some network structure. Two well-known network structures are hierarchies and communication networks. We give an overview of the most common models of communication and hierarchy restrictions in cooperative games, compare different network structures with each other and discuss network structures that combine communication as well as hierarchical features. Throughout the survey, we illustrate these network structures by applying them to cooperative games with restricted cooperation. |
| Keywords: | Networks, games, communication, hierarchy, cooperative TU-game, Shapley value |
| JEL: | C71 |
| Date: | 2021–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210019&r=all |
| By: | Abduraimova, Kumushoy (Imperial College Business School); Nahai-Williamson, Paul (Bank of England) |
| Abstract: | We systematically analyse how network structure and bank characteristics affect solvency distress contagion risk in interbank networks. As interbank networks become more connected and more regular in structure, the contagion risk of system-wide shocks and individual bank defaults initially increases and then decreases, all else being equal. The low density heterogeneous network structures that typify real interbank networks are particularly prone to solvency distress contagion risk, when banks are similar in balance sheet size and capitalisation. However, when networks are calibrated to UK data, the higher capitalisation of large, highly-connected banks relative to their interbank exposures significantly increases the resilience of the system and reduces the importance of network structure. These findings reinforce the importance and effectiveness of imposing higher capital buffers on systemically important banks and of policies that limit interbank exposures. We also demonstrate that for real-world interbank networks, simple network metrics other than individual bank connectedness do not provide robust indicators for monitoring solvency contagion risk, suggesting that policymakers should continue efforts to model these risks explicitly rather than rely on simple aggregate indicators. |
| Keywords: | Financial networks; systemic risk; financial contagion; banking policy |
| JEL: | C54 D85 G01 G21 G28 |
| Date: | 2021–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0909&r=all |
| By: | Alem, Yonas; Dugoua, Eugenie |
| Abstract: | Interactions among peers of the same social network play significant roles in facilitating the adoption and diffusion of modern technologies in poor communities. We conduct a large-scale randomized controlled trial in rural India to identify the impact of information from friends on willingness to pay (WTP) for high-quality and multi-purpose solar lanterns. We offered solar lanterns to seed households from 200 non-electrified villages and randomly assigned three of their friends to two communication treatments (unincentivized and incentivized) that led to different exposure to their seed friend. We also introduce a second treatment to investigate whether the seed's gender impacts the magnitude of peer effects. We show that unincentivized communication increases WTP for solar lanterns by 90% and incentivized communication by 145%, but gender doesn't seem to matter. We also show that learning from others is the mechanism that drives the increase in WTP. Our findings have significant implications for policies that aim at promoting the diffusion of new technologies in developing countries. |
| Keywords: | Technology adoption,peer effects,information flow,solar lantern |
| JEL: | O33 D83 Q21 Q42 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:895&r=all |
| By: | Linea Hasager (CEBI, Department of Economics, University of Copenhagen); Mia Jørgensen (Danmarks Nationalbank) |
| Abstract: | Does living in a low-income neighborhood have negative health consequences? We document causal neighborhood effects on health by exploiting a Spatial Dispersal Policy that quasi-randomly resettled refugees across neighborhoods from 1986-1998. The risk of developing a lifestyle related disease before 2018 increased by 5.1 percent for those allocated to the poorest third of neighborhoods compared with those in the richest third of neighborhoods. Our results suggest that interaction with neighbors and the characteristics of the immediate environment are important determinants for health outcomes. Differences in health care access, ethnic networks, and individual labor market outcomes cannot explain our findings. |
| Keywords: | health inequality, refugee dispersal policy, lifestyle related diseases, neighborhood effects |
| JEL: | J15 I12 I14 I31 |
| Date: | 2021–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2102&r=all |
| By: | Michael E. Rose (Max Planck Institute for Innovation and Competition); Suraj Shekhar (Ashoka University) |
| Abstract: | Using two identification strategies, we demonstrate a positive relationship between the connectedness of a PhD adviser (in the coauthor network) and the placement of her student. In method one, identification is achieved by using changes in the centrality of the adviser’s coauthors in the year of student placement as an exogenous shock to the adviser’s centrality. Our second strategy uses the death of faculty members as an exogenous shock to show that the probability of a student being placed at a particular university reduces when the ‘social distance’ between her adviser and that university increases due to the death. |
| Keywords: | Placement, academic labor market, social network, referrals |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:55&r=all |