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on Network Economics |
| By: | Mikhail Anufriev; Kirill Borissov; Mikhail Pakhnin |
| Abstract: | We study a model of social learning in networks where the dynamics of beliefs are driven by conversations of dissonance-minimizing agents. Given their current beliefs, agents make statements, tune them to the statements of their associates, and then revise their beliefs. We characterize the long-run beliefs in a society, provide the necessary and sufficient conditions for a society to reach a consensus, and show that agents’ social influences (weights on the consensus belief) are decreasing in their dissonance sensitivities. Comparing the outcomes of two models, with and without conversation, we show that conversation leads to a redistribution of social influences in favor of agents with higher self-confidence. Finally, we provide analytical insights for the model where agents minimize dissonance by revising both beliefs and network, and show that an endogenous change of network may prevent a society from reaching a consensus. |
| Keywords: | social networks, DeGroot learning, social influence, dissonance minimization, conversation |
| JEL: | D83 D85 D91 Z13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9433&r= |
| By: | Orlova, Olena (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | We consider network games in which players simultaneously form partnerships and choose actions. Players are heterogeneous with respect to their action preferences. We characterize pairwise Nash equilibria for a large class of games, including coordination and anti-coordination games, varying the strength of action preferences and the size of the linking cost. We find that, despite the symmetry and simplicity of the setting, quite irregular network structures can arise in equilibrium, implying that heterogeneity in players' action preferences may already explain a large part of observed irregularity in endogenously formed networks. |
| Keywords: | network games, strategic network formation, preference heterogeneity, efficiency |
| Date: | 2021–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:659&r= |
| By: | Leonardo Niccol\`o Ialongo; Camille de Valk; Emiliano Marchese; Fabian Jansen; Hicham Zmarrou; Tiziano Squartini; Diego Garlaschelli |
| Abstract: | Recent crises have shown that the knowledge of the structure of input-output networks at the firm level is crucial when studying economic resilience from the microscopic point of view of firms that rewire their connections under supply and demand shocks. Unfortunately, empirical inter-firm network data are rarely accessible and protected by confidentiality. The available methods of network reconstruction from partial information, which have been devised for financial exposures, are inadequate for inter-firm relationships because they treat all pairs of nodes as potentially interacting, thereby overestimating the rewiring capabilities of the system. Here we use two big data sets of transactions in the Netherlands to represent a large portion of the Dutch inter-firm network and document the properties of one of the few analysed networks of this kind. We, then, introduce a generalized maximum-entropy reconstruction method that preserves the production function of each firm in the data, i.e. the input and output flows of each node for each product type. We confirm that the new method becomes increasingly more reliable as a finer product resolution is considered and can therefore be used as a generative model of inter-firm networks with fine production constraints. The likelihood of the model, being related to the entropy, proxies the rewiring capability of the system for a fixed input-output configuration. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.15248&r= |
| By: | McNerney, J.; Savoie, C.; Caravelli, F.; Carvalho, W. M.; Farmer, J. D. |
| Abstract: | Technological improvement is the most important cause of long-term economic growth. We study the effects of technology improvement in the setting of a production network, in which each producer buys input goods and converts them to other goods, selling the product to households or other producers. We show how this network amplifies the effects of technological improvements as they propagate along chains of production. Longer production chains for an industry bias it towards faster price reduction, and longer production chains for a country bias it towards faster GDP growth. These predictions are in good agreement with data and improve with the passage of time, demonstrating a key influence of production chains in price change and output growth over the long term. |
| Keywords: | Production networks, Growth, Multi-sector models, Productivity |
| Date: | 2021–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2183&r= |
| By: | HORIKAWA Takumi (Bank of Japan); MATSUI Yujiro (Bank of Japan); GEMMA Yasufumi (Bank of Japan) |
| Abstract: | In this paper, we attempt to understand the characteristics of the Japanese government bond (JGB) repo market by applying network analysis methods to highly granular data on JGB repo transactions. We especially use a measure of "network centrality" which quantitatively identifies financial institutions that play an important role in the transaction network and a "community detection" method which identifies groups of financial institutions that have close transactional relationships with each other. From the results, it was observed that some highly important financial institutions functioned as intermediaries for transactions and that continuous transaction relationships within groups were built around them. These characteristics may contribute to the efficient matching of cash borrowing and lending needs, and to the smooth execution of large-lot transactions. We also conducted some analysis of the behavior of the network structure of the JGB repo market under market stress using the data from March 2020, when the repo rate fluctuated significantly due to the spread of the COVID-19 pandemic. The results of the analysis in this paper indicate the importance of continuously monitoring the functioning of the JGB repo market, and also provide clues for maintaining and improving the functioning and robustness of the market. |
| Keywords: | Network analysis; Financial markets; Repo transactions; PageRank; Bow-tie decomposition; Community detection |
| JEL: | D85 G14 G20 L14 |
| Date: | 2021–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp21e14&r= |
| By: | Rachael Kei KAWASAKI; IKEDA Yuichi |
| Abstract: | Widespread anti-immigrant sentiment during the COVID-19 pandemic has shown that attitudes towards immigrants are a pertinent issue for policymakers aiming to create effective immigration and integration policy. However, previous research has mainly focused on European and a select group of Anglophone countries, like the United States, Canada, the UK. As a result, policymakers outside of these contexts may find this research inapplicable to their context. This study analyzes regional differences in the determinants of attitudes towards immigrants in over 50 countries by employing four signed and weighted bipartite networks of large regions of countries connected through migration. Using data from Wave 6 of the World Values Survey, four bipartite networks of countries and determinants of attitudes towards immigrants are constructed and projected into one-mode networks: one of the countries and one of the attitudes, beliefs, and values which influence attitudes, or "features." Community analysis detects which features are correlated in determining attitudes, allowing for the reduction of hundreds of features to key determinants of attitudes in a region. The study finds that prejudices towards out-groups, especially racial prejudice, are important determinants irrespective of region and can be considered a generalizable determinant of attitudes towards immigrants. Moreover, analysis of racial prejudice's links with other determinants and its subcommunity structure finds that intergroup conflict theory is influential in the Eastern Europe/Central Asia and Western Europe/North Africa networks, while neither social identity theory nor intergroup conflict theory are present in the Africa, Americas, or Asia networks. Results are mixed in the Middle East and Southeast Asia networks. Finally, values-based attitudes, such as the importance a person puts on fairness or benevolence, are more prominent in networks containing European countries, while they are not in other regions. This finding suggests that values-based communications on migration, which are often considered best practice, may not be effective in other regions, and highlights the need for greater research into cultural differences in the determinants of attitudes. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:21097&r= |
| By: | Abhijit Chakraborty; Tobias Reisch; Christian Diem; Stefan Thurner |
| Abstract: | For centuries, national economies created wealth by engaging in international trade and production. The resulting international supply networks not only increase wealth for countries, but also create systemic risk: economic shocks, triggered by company failures in one country, may propagate to other countries. Using global supply network data on the firm-level, we present a method to estimate a country's exposure to direct and indirect economic losses caused by the failure of a company in another country. We show the network of systemic risk-flows across the world. We find that rich countries expose poor countries much more to systemic risk than the other way round. We demonstrate that higher systemic risk levels are not compensated with a risk premium in GDP, nor do they correlate with economic growth. Systemic risk around the globe appears to be distributed more unequally than wealth. These findings put the often praised benefits for developing countries from globalized production in a new light, since they relate them to the involved risks in the production processes. Exposure risks present a new dimension of global inequality, that most affects the poor in supply shock crises. It becomes fully quantifiable with the proposed method. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.00415&r= |
| By: | Jochmans, Koen |
| Abstract: | Identification of peer effects is complicated by the fact that the individuals under study may self-select their peers. Random assignment to peer groups has proven useful to sidestep such a concern. In the absence of a formal randomization mechanism it needs to be argued that assignment is `as good as' random. This paper introduces a simple yet powerful test to do so. We provide theoretical results for this test. As a by-product we equally obtain such results for an approach popularized by Guryan, Kroft and Notowidigdo (2009). These results help to explain why this approach suffers from low power, as has been observed elsewhere. Our approach can equally be used to test for the presence of peer effects in the linear-in-means model without modification. |
| Keywords: | asymptotic power; bias; fixed effects; peer effects; random assignment;; test |
| JEL: | C12 C21 |
| Date: | 2021–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126193&r= |
| By: | Hartmut Egger; Elke Jahn; Stefan Kornitzky |
| Abstract: | We merge firm-level data on ownership linkages with administrative data on German workers to analyze how the position in a business group hierarchy affects workers’ wages. To acknowledge that ownership linkages are not onedirectional, we propose an index of hierarchical distance to the ultimate owner that accounts for the complex network structure of business groups. After controlling for unobserved heterogeneity, we find a positive effect of larger hierarchical distance to the ultimate owner of a business group on workers’ wages. To explain this finding, we develop a monitoring-based theory of business groups. Our model predicts higher wages to prevent shirking by workers if a larger hierarchical distance to the ultimate owner is associated with lower monitoring efficiency. |
| Keywords: | Business groups, ownership networks, workers wages, differencein-difference, hierarchical distance |
| JEL: | C23 J31 L23 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bav:wpaper:213_eggerjahnkornitzky&r= |
| By: | Farmer, J. Doyne; Kleinnijenhuis, Alissa; Wetzer, Thom; Wiersema, Garbrand |
| Abstract: | Currently financial stress test simulations that take into account multiple interacting contagion mechanisms are conditional on a specific, subjectively imposed stress-scenario. Eigenvalue-based approaches, in contrast, provide a scenario-independent measure of systemic stability, but only handle a single contagion mechanism. We develop an eigenvalue-based approach that gives the best of both worlds, allowing analysis of multiple, interacting contagion channels without the need to impose a subjective stress scenario. This allows us to demonstrate that the instability due to interacting channels can far exceed that of the sum of the individual channels acting alone. We derive an analytic formula in the limit of a large number of institutions that gives the instability threshold as a function of the relative size and intensity of contagion channels, providing valuable insights into financial stability whilst requiring very little data to be calibrated to real financial systems. |
| Keywords: | Financial Stability, Systemic Risk, Interacting Contagion Channels, Financial Contagion, Multiplex Networks, Stress Test, Liquidity-Solvency Nexus |
| JEL: | G01 G17 G18 G21 G23 G28 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:amz:wpaper:2019-10&r= |
| By: | Farmer, J. Doyne; Kleinnijenhuis, Alissa; Goodhart, Charles |
| Abstract: | The 2007-2008 financial crisis forced governments to choose between the unattractive alternatives of either bailing out a systemically important bank (SIB) or allowing it to fail disruptively. Bail-in has been put forward as an alternative that potentially addresses the too-big-to-fail and contagion risk problems simultaneously. Though its efficacy has been demonstrated for smaller idiosyncratic SIB failures, its ability to maintain stability in cases of large SIB failures and system-wide crises remains untested. This paper's novelty is to assess the financial-stability implications of bail-in design, explicitly accounting for the multilayered networked nature of the financial system. We present a model of the European financial system that captures all five of the prevailing contagion channels. We demonstrate that it is essential to understand the interaction of multiple contagion mechanisms and that financial institutions other than banks play an important role. Our results indicate that stability hinges on the bank-specific and structural bail-in design. On one hand, a well designed bail-in buttresses financial resilience, but on the other hand, an ill-designed bail-in tends to exacerbate financial distress, especially in system-wide crises and when there are large SIB failures. Our analysis suggests that the current bail-in design may be in the region of instability. While policy makers can fix this, the political economy incentives make this unlikely. |
| Keywords: | Too big to fail, resolution, bail-in, liquidation, insolvency law, financial crisis, contagion, financial networks, failure, default, bail-out, banks, systemically important banks, loss absorption requirements, bail-in debt, bail-in debt pricing, political economy |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:amz:wpaper:2021-21&r= |