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on Network Economics |
| By: | Nizar Allouch; Maya Jalloul; Alfred Duncan |
| Abstract: | This paper investigates a model of default in financial networks where the decision by one agent on whether or not to default impacts the incentives of other agents to escape default. Agents' payoffs are determined by the clearing mechanism introduced in the seminal contribution of Eisenberg and Noe (2001). We first show the existence of a Nash equilibrium of this default game. Furthermore, we develop an algorithm to find all Nash equilibria that relies on the financial network structure. The algorithm provides a ranking for the set of Nash equilibria, which can serve as a measure of systemic risk. Finally, we show that introducing a central clearing counterparty achieves the efficient equilibrium at no additional cost. |
| Keywords: | systemic risk, default; financial networks; coordination games; central clearing counterparty; financial regulation |
| JEL: | C72 D53 D85 G21 G28 G33 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:2111&r= |
| By: | Nizar Allouch |
| Abstract: | In this paper, we show that a concept of aggregation can hold in large network games with linear best replies. Breaking up large networks into smaller subnetworks, which can be replaced by representative players, leads to a coarse-grained description of strategic interactions. This method of summarizing complex strategic interactions by simple ones can be applied to compute all Nash equilibria for the special network structure of cograph. A key finding is that a stable Nash equilibrium of the large network game can be decomposed into a collection of Nash equilibria of subnetwork games. Thereby, we establish a systematic relationship between player’s position in a subnetwork and his equilibrium action in the large network game. |
| Keywords: | aggregation; modular decomposition; network games; public goods; stability |
| JEL: | C72 D31 D85 H41 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:2109&r= |
| By: | Alessandro Ferracci; Giulio Cimini |
| Abstract: | We study the difference between the level of systemic risk that is empirically measured on an interbank network and the risk that can be deduced from the balance sheets composition of the participating banks. Using generalised DebtRank dynamics, we measure observed systemic risk on e-MID network data (augmented by BankFocus information) and compare it with the expected systemic of a null model network, obtained through an appropriate maximum-entropy approach constraining relevant balance sheet variables. We show that the aggregate levels of observed and expected systemic risks are usually compatible but differ significantly during turbulent times (in our case, after the default of Lehman Brothers and the VLTRO implementation by the ECB). At the individual level instead, banks are typically more or less risky than what their balance sheet prescribes due to their position in the network. Our results confirm on one hand that balance sheet information used within a proper maximum-entropy network models provides good systemic risk estimates, and on the other hand the importance of knowing the empirical details of the network for conducting precise stress tests of individual banks, especially after systemic events. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.14360&r= |
| By: | Tizié Bene (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Frédéric Deroïan (Aix-Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, individual incentives are aligned with social welfare. We extend our analysis to CRRA utilities and to a fixed utility cost of adoption. |
| Keywords: | formal insurance, informal transfers, altruism networks |
| JEL: | C72 D85 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2140&r= |
| By: | Carlos Bianchi (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Pablo Galaso (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Sergio Palomeque (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | Brokers play a critical role in the evolution of innovation systems. However, accessing and diffusing knowledge into the system imply costs and requires capacities. Using patent data to analyze inter-city networks in Latin America, we revisit the debate on the benefits and costs of knowledge networks. We identify broker cities, differentiating between intra-regional and extra-regional connections, and we estimate the effects of brokerage on patenting outcomes between 2006 and 2017. Our findings reveal that cities holding a central position in the network show higher patenting activity; however, being broker, particularly bridging Latin America with extra-regional cities, negatively influences patenting outcomes. |
| Keywords: | inter-city networks, patents, brokerage, innovation systems, Latin America. |
| JEL: | O31 O54 P48 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-21-21&r= |
| By: | Philip Solimine; Luke Boosey |
| Abstract: | In this paper, we examine behavior in a voluntary resource sharing game that incorporates endogenous network formation; an incentive problem that is increasingly common in contemporary digital economies. Using a laboratory experimental implementation of repeated play in this information-rich decision setting, we examine the effects of a simple reputation feedback system on patterns of linking and contribution decisions. Reduced-form estimates find significant effects of the information treatment on a number of key outcomes such as efficiency, complementarity, and decentralization. To further understand the driving causes of these observed changes in behavior, we develop and estimate a discrete-choice framework, using computationally efficient panel methods to identify the structure of social preferences in this setting. We find that the information treatment focuses reciprocity, and helps players coordinate to reach more efficient outcomes. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.14204&r= |
| By: | Atabek Atayev; Maarten Janssen |
| 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. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.15288&r= |
| By: | Teruyoshi Kobayashi; Yoshitaka Ogisu; Tomokatsu Onaga |
| Abstract: | How and to what extent will new activities spread through social ties? Here, we develop a more sophisticated framework than the standard mean-field approach to describe the diffusion dynamics of multiple activities on complex networks. We show that the diffusion of multiple activities follows a saddle path and can be highly unstable. In particular, when the two activities are sufficiently substitutable, either of them would dominate the other by chance even if they are equally attractive ex ante. When such symmetry-breaking occurs, any average-based approach cannot correctly calculate the Nash equilibrium - the steady state of an actual diffusion process. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.14560&r= |
| By: | Schulz, Jan; Mayerhoffer, Daniel M. |
| Abstract: | The nexus between debt and inequality has attracted considerable scholarly attention in the wake of the global financial crisis. One prominent candidate to explain the striking co-evolution of income inequality and private debt in this period has been the theory of upward-looking consumption externalities leading to expenditure cascades. We propose a parsimonious model of upward-looking consumption at the micro level mediated by perception networks with empirically plausible topologies. This allows us to make sense of the ambiguous empirical literature on the relevance of this channel. Up to our knowledge, our approach is the first to make the reference group to which conspicuous consumption relates explicit. Our model, based purely on current income, replicates the major stylised facts regarding micro consumption behaviour and is thus observationally equivalent to the workhorse permanent income hypothesis, without facing its dual problem of 'excess smoothness' and 'excess sensitivity'. We also demonstrate that the network topology and segregation has a significant effect on consumption patterns which has so far been neglected. |
| Keywords: | Agent-Based Computational Economics,Consumption,Inequality,Relative Income Hypothesis,Positional Goods,Aggregation |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:173&r= |
| By: | Kevin F. Kiernan; Vladimir Yankov; Filip Zikes |
| Abstract: | We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector. |
| Keywords: | Liquidity insurance; Liquidity regulation; Interbank networks; Syndicated credit lines |
| JEL: | G21 G18 L14 |
| Date: | 2021–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-60&r= |