nep-net New Economics Papers
on Network Economics
Issue of 2021‒03‒29
fifteen papers chosen by
Alfonso Rosa García
Universidad de Murcia

  1. Attack and Interception in Networks By Bloch, Francis; Chatterjee, Kalyan; Dutta, Bhaskar
  2. Zero-Diagonality as a Linear Structure By Jan R. Magnus; Enrique Sentana
  3. Price setting on a network By Toomas Hinnosaar
  4. Social interactions and the prophylaxis of SI epidemics on networks By Géraldine Bouveret; Antoine Mandel
  5. Earnings Inequality in Production Networks By Federico Huneeus; Kory Kroft; Kevin Lim
  6. Power and the money, money and the power: A network analysis of donations from American corporate to political leaders. By James Rockey; Nadia Zakir
  7. Gender and Social Networks on Bank Boards By Ann L. Owen; Judit Temesvary; Andrew Wei
  8. Motivation Crowding in Peer Effects: The Effect of Solar Subsidies on Green Power Purchases By Andrea La Nauze
  9. Monetary dynamics in a network economy By Antoine Mandel; Vipin Veetil
  10. O-Ring Production Networks By Banu Demir; Ana Cecília Fieler; Daniel Xu; Kelly Kaili Yang
  11. The effect of social distancing on the reach of an epidemic in social networks. By Gutin, Gregory; Hirano, Tomohiro; Hwang, Sung-Ha; Neary, Philip R; Toda, Alexis Akira
  12. Information Pools and Insider Trading: A Snapshot of America's Financial Elite. By Antoine Didisheim; Luciano Somoza
  13. Peer effects in college: how peers' performance can influence students' academic outcomes By de Souza, Laeticia R.; de Xavier Pinto, Cristine Campos; Queiroz, Bernardo L; de Oliveira e Silva, Dimitri
  14. Optimal Clearing Payments in a Financial Contagion Model By Giuseppe Calafiore; Giulia Fracastoro; Anton V. Proskurnikov
  15. Learning about Farming: Innovation and Social Networks in a Resettled Community in Brazil By Margherita Comola; Carla Inguaggiato; Mariapia Mendola

  1. By: Bloch, Francis (Universite Paris 1 and Paris School of Economics); Chatterjee, Kalyan (Pennsylvania State University); Dutta, Bhaskar (University of Warwick and Ashoka University)
    Abstract: This paper studies a game of attack and interception in a network, where a single attacker chooses a target and a path, and each node chooses a level of protection. We show that the Nash equilibrium of the game exists and is unique. It involves a mixed strategy of the attacker except when one target has a very high value relative to others. We characterize equilibrium attack paths and attack distributions as a function of the underlying network and target values. We also show that adding a link or increasing the value of a target may harm the attacker - a comparative statics e ect which is reminiscent of Braess's paradox in transportation economics. Finally, we contrast the Nash equilibrium with the equilibria of two variations of the model : one where nodes make sequential protection decisions upon observing the arrival of a suspicious object, and one where all nodes cooperate in defense.
    Keywords: Keywords: Network interdiction ; Networks ; Attack and defense ; Inspection
    Date: 2021
  2. By: Jan R. Magnus (Vrije Universiteit Amsterdam and Tinbergen Institu); Enrique Sentana (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: A linear structure is a family of matrices that satisfy a given set of linear restrictions, such as symmetry or diagonality. We add to the literature on linear structures by studying the family of matrices where all diagonal elements are zero, and discuss two econometric examples where these results can be fruitfully applied.
    Keywords: Diagonality, networks, restricted matrices, structural vector autoregressions.
    JEL: C65 C21 C32
    Date: 2020–06
  3. By: Toomas Hinnosaar
    Abstract: Most products are produced and sold by supply chain networks, where an interconnected network of producers and intermediaries set prices to maximize their profits. I show that there exists a unique equilibrium in a price-setting game on a network. The key distortion reducing both total profits and social welfare is multiple-marginalization, which is magnified by strategic interactions. Individual profits are proportional to influentiality, which is a new measure of network centrality defined by the equilibrium characterization. The results emphasize the importance of the network structure when considering policy questions such as mergers or trade tariffs.
    Keywords: price setting, networks, sequential games, multiple-marginalization, supply chains, mergers, tariffs, trade, centrality.
    JEL: C72 L14 D43
    Date: 2020
  4. By: Géraldine Bouveret (NTU - Nanayang Technological University - Nanayang Technological University); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the containment of epidemic spreading in networks from a normative point of view. We consider a susceptible/infected model in which agents can invest in order to reduce the contagiousness of network links. In this setting, we study the relationships between social efficiency, individual behaviours and network structure. First, we characterise individual and socially efficient behaviour using the notions of communicability and exponential centrality. Second, we show, by computing the Price of Anarchy, that the level of inefficiency can scale up to linearly with the number of agents. Third, we prove that policies of uniform reduction of interactions satisfy some optimality conditions in a vast range of networks. In setting where no central authority can enforce such stringent policies, we consider as a type of second-best policy the implementation of cooperation frameworks that allow agents to subsidise prophylactic investments in the global rather than in the local network. We then characterise the scope for Pareto improvement opened by such policies through a notion of Price of Autarky, measuring the ratio between social welfare at a global and a local equilibrium. Overall, our results show that individual behaviours can be extremely inefficient in the face of epidemic propagation but that policy can take advantage of the network structure to design welfare improving containment policies.
    Keywords: Network,Price of Anarchy,Epidemic Spreading,Public Good
    Date: 2021
  5. By: Federico Huneeus; Kory Kroft; Kevin Lim
    Abstract: This paper investigates the importance of firm-to-firm production network linkages for earnings inequality. We develop a quantitative model in which heterogeneous firms hire workers of different abilities in an imperfectly competitive labor market and source intermediates from heterogeneous suppliers in a production network. The model delivers an earnings equation with a firm-specific wage premium that depends endogenously on both firm productivities and firm-to-firm linkages in the production network. We establish identification of the model parameters and estimate them using linked employer-employee and firm-to-firm transactions data from Chile. Counterfactual simulations using our estimated model show that heterogeneity in network linkages explains 21% of log earnings variance, while passthrough of productivity shocks via network linkages explains between 20-25% of earnings volatility. We also examine the effects of a minimum wage policy and find strong spillover effects to worker earnings above the wage floor, with substitution of materials for labor explaining around 40% of these effects.
    JEL: F0 F12 F16 J0 J31 J42
    Date: 2021–02
  6. By: James Rockey (University of Birmingham); Nadia Zakir (University of Leicester)
    Abstract: American corporate and political elites are connected by the donations that the latter receive from the former. Using a novel dataset, this paper analyzes these connections as a social network. This analysis uncovers the changing structure of this network, and thus of the changing nature of money in US politics. In particular, beyond the well understood increase in the scale of donations, we document how donation patterns have become more polarized and more concentrated. We show that the determinants of this network's structure have remained broadly constant over time. Donors associated with the same firm or industry are substantially more likely to donate to the same candidates in all the elections we study. Likewise, politicians serving on the same congressional committees have been consistently more likely to receive campaign funds from the same donors. Yet, there has been a transformation in the concentration of donations on a small number of donors and recipients connected with a small number of committees and a small number of industries. This concentration is reflected in substantial increases in the power (centrality) of the most important donors and politicians.
    Keywords: Donations, Campaign Contributions, Networks
    JEL: D72 L14
    Date: 2021–03
  7. By: Ann L. Owen; Judit Temesvary; Andrew Wei
    Abstract: We examine the effect of the social networks of bank directors on board gender diversity and compensation using a unique, newly compiled dataset over the 1999-2018 period. We find that within-board social networks are extensive, but there are significant differences in the size and gender composition of social networks of male vs female bank directors. We also find that samegender networks play an important role in determining the gender composition of bank boards. Finally, we show that those connected to male directors receive higher compensation, but we find no evidence that connections to female directors are influential in determining pay and bonuses.
    Keywords: Bank boards; Social networks; Gender; Gender diversity
    JEL: G21 G34 J16
    Date: 2021–03–22
  8. By: Andrea La Nauze
    Abstract: I test whether economic incentives dampen peer effects in public-good settings. I study how a visible and subsidized contribution to a public good (installing solar panels) affects peer contributions that are neither subsidized nor visible (electing green power). Exploiting spatial variation in the feasibility of installing solar panels, I find that panels increase voluntary purchases of green power by neighbors. However, using sharp changes in government incentives over time, I find that the magnitude of the spillover depends on the level of subsidies to solar. The results support the hypothesis that signals drive peer responses to visible public-good contributions and that economic incentives blur those signals.
    Keywords: motivation, public goods contribution, solar panels, green energy, environmental public goods
    Date: 2021
  9. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of price dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms that are governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal changes in demand and downstream via real changes in supply. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model provides an explanation of the price puzzle: a temporary rise in the price level in response to monetary contractions. In our setting, the puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Keywords: JEL Codes C63,C67,D80,E31,E52 Price Puzzle,Production Network,Money,Monetary Non-Neutrality,Out-of-Equilibrium Dynamics
    Date: 2021–04
  10. By: Banu Demir; Ana Cecília Fieler; Daniel Xu; Kelly Kaili Yang
    Abstract: We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and trade more with other high-quality firms. Using data from Turkish firms, we document strong assortative matching of skills in the production network. A firm-specific export demand shock from a rich country increases the firm's skill intensity and shifts the firm toward skill-intensive domestic partners. We develop a quantitative model with heterogeneous firms, endogenous quality choices, and network formation. An economy-wide export demand shock of 5 percent induces exporters and non-exporters to upgrade quality, raising the average wage by 1.2 percent. This effect is about nine times the effect in a special case of the model with no interconnection of quality choices.
    JEL: F14 L14 O30
    Date: 2021–02
  11. By: Gutin, Gregory; Hirano, Tomohiro; Hwang, Sung-Ha; Neary, Philip R; Toda, Alexis Akira
    Abstract: How does social distancing affect the reach of an epidemic in social networks? We present Monte Carlo simulation results of a susceptible-infected-removed with social distancing model. The key feature of the model is that individuals are limited in the number of acquaintances that they can interact with, thereby constraining disease transmission to an infectious subnetwork of the original social network. While increased social distancing typically reduces the spread of an infectious disease, the magnitude varies greatly depending on the topology of the network, indicating the need for policies that are network dependent. Our results also reveal the importance of coordinating policies at the 'global' level. In particular, the public health benefits from social distancing to a group (e.g. a country) may be completely undone if that group maintains connections with outside groups that are not following suit.
    Keywords: BA scale-free networks, Infectious subnetwork, SIRwSD model, Social distancing, WS small-world networks, q-bio.PE, physics.soc-ph, Fluids & Plasmas, Applied Economics
    Date: 2021–03–03
  12. By: Antoine Didisheim (Swiss Finance Institute, UNIL); Luciano Somoza (University of Lausanne, HEC; Swiss Finance Institute)
    Abstract: We document abnormal correlations between hedge funds' performance among managers sharing similar elite socio-economic backgrounds. In particular, Columbia, Harvard, University of Pennsylvania, Stanford, and NYU alumni are highly correlated among themselves. We take steps toward linking this phenomenon to a shared information pool with a quasi-natural experiment: the 2009 Galleon Capital insider trading scandal. The difference-in-difference analysis shows a significant reduction in returns of the elite managers following the scandal. Finally, we present evidences suggesting that investors recognize this pool's value, as funds likely to have access to elite information are associated with 55% higher assets under management at launch.
    Keywords: network, hedge funds, Ivy league, information flows, insider trading
    Date: 2021–03
  13. By: de Souza, Laeticia R.; de Xavier Pinto, Cristine Campos; Queiroz, Bernardo L (Universidade Federal de Minas Gerais, Brazil); de Oliveira e Silva, Dimitri
    Abstract: This paper investigates the existence of peer effects in academic outcomes by exploring specificities in the student's admission process of a Brazilian federal university, which works as a natural experiment. Individuals who are comparable in terms of previous academic achievement end up having classmates with better or worse performance in college because of the assignment rule of students to classrooms. Thus, our identification strategy for estimating peer effects on academic outcomes eliminates the endogenous self-selection into groups that would otherwise undermine the causal inference of peer effects. Overall, our findings showed that joining a class with high-ability students damages academic achievements of the lowest-ability students at UFMG. Although male and female students are both negatively affected by being in the first (better) class, we found gender differences. Specifically, being at the bottom of the better class make females take less radical decisions compared to male students in the sense that female students continue to study even though with lower performance (reduced GPA and credits earned) while male students seem to be more prone towards dropping out (increased number of subjects – or even University registration – cancelled and reduced attendance in classroom). We have also found other heterogeneities in peer effects in college in terms of class shift, period of admission, area of study and parents’ education. This study is a necessary step before investigating the impact of peer quality on after-graduating decisions using the same natural experiment. This will allow us to deepen our understanding of how peer effects can also have long-lasting impacts.
    Date: 2021–03–18
  14. By: Giuseppe Calafiore; Giulia Fracastoro; Anton V. Proskurnikov
    Abstract: Modern financial networks are characterized by complex structures of mutual obligations. Such interconnections may propagate and amplificate individual defaults, leading in some cases to financial disaster. For this reason, mathematical models for the study and control of systemic risk (the risk of severe instabilities on the system as a whole, due to default of single entities) have attracted considerable research attention in recent years. One important line of research is concerned with mechanisms of clearing, that is, the mechanism by which mutual debts are repaid, in the regular regime, or in a default regime. One of the first models of a clearing mechanism was proposed by Eisenberg and Noe and is based on the three rules: limited liability, the priority of debt claims over the shareholders' interests, and the equal priority of debts (pro-rata rule). These three principles naturally lead to the concept of clearing vector (the vector of the entities' total payments). In this paper, we propose a necessary and sufficient condition for the uniqueness of clearing vector applicable to an arbitrary topology of the financial network. Further, we show that the overall system loss can be reduced if one relaxes the pro-rata rule and replaces the clearing vector by a matrix of clearing payments. This approach shifts the focus from the individual interest to the system, or social, interest, in order to control and contain the adverse effects of cascaded failures.
    Date: 2021–03
  15. By: Margherita Comola (University Paris-Saclay and Paris School of Economics); Carla Inguaggiato (University of Bern, Centre for Development and Environment); Mariapia Mendola (University of Milano{Bicocca and IZA)
    Abstract: We study the role of social learning in the diffusion of cash crops in a resettled village economy in northeastern Brazil. We combine detailed geo-coded data on farming plots with dyadic data on social ties among settlers, and we leverage natural exogenous variation in network formation induced by the land occupation movement and the agrarian reform. By using longitudinal data on farming decisions over 15 years we find consistent evidence of significant peer effects in the decision to farm new cash fruits (pineapple and passion fruit). Our results suggest that social diffusion is heterogeneous along observed plot and crop characteristics, i.e. farmers growing water-sensitive crop are more likely to respond to the actions of peers with similar water access conditions.
    Keywords: Technology Adoption, Agrarian Reform, Social Networks, Peer Effects, Brazil
    JEL: C45 D85 J15 O33 Q15
    Date: 2021–02–09

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