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on Network Economics |
| By: | Renato Soeiro; Alberto Pinto |
| Abstract: | The partition of society into groups, polarization, and social networks are part of most conversations today. How do they influence price competition? We discuss Bertrand duopoly equilibria with demand subject to network effects. Contrary to models where network effects depend on one aggregate variable (demand for each choice), partitioning the dependence into groups creates a wealth of pure price equilibria with profit for both price setters, even if positive network effects are the dominant element of the game. If there is some asymmetry in how groups interact, two groups are sufficient. If network effects are based on undirected and unweighted graphs, at least five groups are required but, without other differentiation, outcomes are symmetric. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.05891&r= |
| By: | Roland Pongou; Guy Tchuente; Jean-Baptiste Tondji |
| Abstract: | This study develops an economic model for a social planner who prioritizes health over short-term wealth accumulation during a pandemic. Agents are connected through a weighted undirected network of contacts, and the planner's objective is to determine the policy that contains the spread of infection below a tolerable incidence level, and that maximizes the present discounted value of real income, in that order of priority. The optimal unique policy depends both on the configuration of the contact network and the tolerable infection incidence. Comparative statics analyses are conducted: (i) they reveal the tradeoff between the economic cost of the pandemic and the infection incidence allowed; and (ii) they suggest a correlation between different measures of network centrality and individual lockdown probability with the correlation increasing with the tolerable infection incidence level. Using unique data on the networks of nursing and long-term homes in the U.S., we calibrate our model at the state level and estimate the tolerable COVID-19 infection incidence level. We find that laissez-faire (more tolerance to the virus spread) pandemic policy is associated with an increased number of deaths in nursing homes and higher state GDP growth. In terms of the death count, laissez-faire is more harmful to nursing homes than more peripheral in the networks, those located in deprived counties, and those who work for a profit. We also find that U.S. states with a Republican governor have a higher level of tolerable incidence, but policies tend to converge with high death count. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.10230&r= |
| By: | Emanuele Citera (Department of Economics, New School for Social Research); Shyam Gouri Suresh (Department of Economics, Davidson College and Department of Economics, FLAME University); Mark Setterfield (Department of Economics, New School for Social Research) |
| Abstract: | We construct a model of cyclical growth with agent-based features designed to study the network origins of aggregate fluctuations from a demand-side perspective. In our model, aggregate fluctuations result from variations in investment behavior at firm level motivated by endogenously-generated changes in `animal spirits' or the state of long run expectations (SOLE). In addition to being influenced by their own economic conditions, firms pay attention to the performance of first-degree network neighbours, weighted (to differing degrees) by the centrality of these neighbours in the network, when revising their SOLE. This allows us to analyze the effects of the centrality of linked network neighbours on the amplitude of aggregate fluctuations. We show that the amplitude of fluctuations is significantly affected by the eigenvector centrality, and the weight attached to the eigenvector centrality, of linked network neighbours. The dispersion of this effect about its mean is shown to be similarly important, resulting in the possibility that network properties can result in `great moderations' giving way to sudden increases in the volatility of aggregate economic performance. |
| Keywords: | Aggregate fluctuations, cyclical growth, animal spirits, state of long run expectations, agent-based model, random network, preferential attachment, small world |
| JEL: | C63 E12 E32 E37 O41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:2118&r= |
| By: | Matthew Elliott (CAM - University of Cambridge [UK]); Benjamin Golub (Northwestern University [Evanston]); Matthew Leduc (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. We find that equilibrium aggregate production is robust to idiosyncratic disruptions. Nevertheless, there is a regime in which arbitrarily small systemic shocks cause arbitrarily steep drops in output, so that the the supply network is fragile. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks. |
| Date: | 2021–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03359607&r= |
| By: | Lu Dong (Nanjing Audit University); Lingbo Huang (Nanjing Audit University); Jaimie W. Lien (Chinese University of Hong Kong); Jie Zheng (Tsinghua University) |
| Abstract: | In a social network in which friendly and rival bilateral links can be formed, how do alliances between decision-makers form, and what determines whether a conflict will arise? We study a network formation game between ex-ante symmetric players in the laboratory to examine the dynamics of alliance formation and conflict evolution. A peaceful equilibrium yields the greatest social welfare, while a successful bullying attack transfers the victimized player’s resources evenly to the attackers at a cost. Consistently with the theoretical model predictions, peaceful and bullying outcomes are prevalent among the randomly re-matched experimental groups, based on the cost of attack. We further examine the dynamics leading to the final network and find that groups tend to coordinate quickly on a first target for attack, while the first attacker entails a non-negligible risk of successful counter-attack by initiating the coordination. These findings provide insights for understanding social dynamics in group coordination. |
| Keywords: | network formation, conflict, alliance, bully, peace |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2021-04&r= |
| By: | Naonori Kakimura; Donghao Zhu |
| Abstract: | In this paper, we study a matching market model on a bipartite network where agents on each side arrive and depart stochastically by a Poisson process. For such a dynamic model, we design a mechanism that decides not only which agents to match, but also when to match them, to minimize the expected number of unmatched agents. The main contribution of this paper is to achieve theoretical bounds on the performance of local mechanisms with different timing properties. We show that an algorithm that waits to thicken the market, called the $\textit{Patient}$ algorithm, is exponentially better than the $\textit{Greedy}$ algorithm, i.e., an algorithm that matches agents greedily. This means that waiting has substantial benefits on maximizing a matching over a bipartite network. We remark that the Patient algorithm requires the planner to identify agents who are about to leave the market, and, under the requirement, the Patient algorithm is shown to be an optimal algorithm. We also show that, without the requirement, the Greedy algorithm is almost optimal. In addition, we consider the $\textit{1-sided algorithms}$ where only an agent on one side can attempt to match. This models a practical matching market such as a freight exchange market and a labor market where only agents on one side can make a decision. For this setting, we prove that the Greedy and Patient algorithms admit the same performance, that is, waiting to thicken the market is not valuable. This conclusion is in contrast to the case where agents on both sides can make a decision and the non-bipartite case by [Akbarpour et al.,$~\textit{Journal of Political Economy}$, 2020]. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.10824&r= |
| By: | Harold D Chiang; Yukitoshi Matsushita; Taisuke Otsu |
| Abstract: | his paper develops a general methodology to conduct statistical inference for observations indexed by multiple sets of entities. We propose a novel multiway empirical likeli- hood statistic that converges to a chi-square distribution under the non-degenerate case, where corresponding Hoeffding type decomposition is dominated by linear terms. Our methodology is related to the notion of jackknife empirical likelihood but the leave-out pseudo values are constructed by leaving out columns or rows. We further develop a modified version of our multiway empirical likelihood statistic, which converges to a chi-square distribution regardless of the degeneracy, and discover its desirable higher-order property compared to the t-ratio by the conventional Eicker-White type variance estimator. The proposed methodology is illus- trated by several important statistical problems, such as bipartite network, two-stage sampling, generalized estimating equations, and three-way observations. |
| Keywords: | Multiway data, empirical likelihood, bipartite network |
| JEL: | C14 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stiecm:617&r= |