nep-net New Economics Papers
on Network Economics
Issue of 2022‒07‒25
eight papers chosen by
Alfonso Rosa García
Universidad de Murcia

  1. The role of unobservable characteristics in friendship network formation. By Pablo Brañas-Garza; Lorenzo Ductor; Jaromir Kovarik
  2. Welfare and Distributional Effects of Joint Intervention in Networks By Ryan Kor; Junjie Zhou
  3. Controlling replication via the belief system in multi-unit organizations By Ravshanbek Khodzhimatov; Stephan Leitner; Friederike Wall
  4. The Network Origin of Slow Labor Reallocation By Leonard Bocquet
  5. Misallocation in the Market for Inputs: Enforcement and the Organization of Production By Johannes Boehm; Ezra Oberfield
  6. Measuring Capital at Risk in the UK banking sector: a microstructural network approach By Covi, Giovanni; Brookes, James; Raja, Charumathi
  7. The trickle down from environmental innovation to productive complexity By Francesco de Cunzo; Alberto Petri; Andrea Zaccaria; Angelica Sbardella
  8. Sharing the Cost of a Gas Distribution Network By David Lowing

  1. By: Pablo Brañas-Garza (Universidad de Loyola Andalucia); Lorenzo Ductor (Department of Economic Theory and Economic History, University of Granada.); Jaromir Kovarik (‡Universidad del País Vasco UPV/EHU and University of West Bohemia)
    Abstract: Inbreeding homophily is a prevalent feature of human social networks with important individual and group-level social, economic, and health consequences. The literature has proposed an overwhelming number of dimensions along which human relationships might sort, without proposing a unified empirically-grounded framework for their categorization. We exploit rich data on a sample of University freshmen with very similar characteristic - age, race and education- and contrast the relative importance of observable vs. unobservables characteristics in their friendship formation. We employ Bayesian Model Averaging, a methodology explicitly designed to target model uncertainty and to assess the robustness of each candidate attribute while predicting friendships. We show that, while observable features such as assignment of students to sections, gender, and smoking are robust key determinants of whether two individuals befriend each other, unobservable attributes, such as personality, cognitive abilities, economic preferences, or socio-economic aspects, are largely sensible to the model specification, and are not important predictors of friendships.
    Keywords: editorial boards, journals, concentration, power, busyness, innovation, impact
    JEL: D8 D85 J7 J16 O30
    Date: 2022–07–06
  2. By: Ryan Kor; Junjie Zhou
    Abstract: We study a planner's optimal interventions in both the standalone marginal utilities of players on a network and weights on the links that connect players. The welfare-maximizing joint intervention exhibits the following properties: (a) when the planner's budget is moderate (so that optimal interventions are interior), the change in weight on any link connecting a pair of players is proportional to the product of eigen-centralities of the pair; (b) when the budget is sufficiently large, the optimal network takes a simple form: It is either a complete network under strategic complements or a complete balanced bipartite network under strategic substitutes. We show that the welfare effect of joint intervention is shaped by the principal eigenvalue, while the distributional effect is captured by the dispersion of the corresponding eigenvalues, i.e., the eigen-centralities. Comparing joint intervention in our setting with single intervention solely on the standalone marginal utilities, as studied by Galeotti et al. (2020), we find that joint intervention always yields a higher aggregate welfare, but may lead to greater inequality, which highlights a possible trade-off between the welfare and distributional impacts of joint intervention.
    Date: 2022–06
  3. By: Ravshanbek Khodzhimatov; Stephan Leitner; Friederike Wall
    Abstract: Multi-unit organizations such as retail chains are interested in the diffusion of best practices throughout all divisions. However, the strict guidelines or incentive schemes may not always be effective in promoting the replication of a practice. In this paper we analyze how the individual belief systems, namely the desire of individuals to conform, may be used to spread knowledge between departments. We develop an agent-based simulation of an organization with different network structures between divisions through which the knowledge is shared, and observe the resulting synchrony. We find that the effect of network structures on the diffusion of knowledge depends on the interdependencies between divisions, and that peer-to-peer exchange of information is more effective in reaching synchrony than unilateral sharing of knowledge from one division. Moreover, we find that centralized network structures lead to lower performance in organizations.
    Date: 2022–06
  4. By: Leonard Bocquet (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - 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, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - 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: What explains slow worker reallocation after trade or technological shocks? In this paper, I explore the idea that imperfect skill transferability constrains the reallocation of workers between occupations. I model these frictions as forming a network (the "occupational network"), whose nodes are occupations and whose edges represent the possible occupational transitions. I show that the structure of the occupational network matters for the speed of worker reallocation and I make two contributions. First, I find that this network is very sparse, hinting at large frictions to occupational mobility, and that there exists central bottleneck occupations which can block the reallocation process. Second, I extend the search and matching model of the labor market with an occupational network. I find that asymmetric shocks can generate transition dynamics which are two orders of magnitude slower than in the standard model. Moreover, I show that the intensity of network bottlenecks is a key determinant of slow worker reallocation dynamics after asymmetric shocks. In other words, central occupations have a granular effect on worker reallocation speed.
    Date: 2022–06
  5. By: Johannes Boehm (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science); Ezra Oberfield (Princeton University)
    Abstract: The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more-congested courts shift their expenditures away from intermediate inputs and have a greater vertical span of production. To quantify the effect of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost-minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale.
    Keywords: Production networks,Intermediate inputs,Misallocation,Productivity,Contract enforcement,Value chains
    Date: 2020–11
  6. By: Covi, Giovanni (Bank of England); Brookes, James (Bank of England); Raja, Charumathi (Bank of England)
    Abstract: In this paper we construct and analyse the UK banking system’s Global Network of granular exposures which captures roughly 90% of the UK banking system’s total assets for the period 2018 Q1 to 2021 Q4. We thus study the microstructure of UK banking system focusing on the role played by concentration risk and interconnectedness across sectors. We then estimate the quarterly evolution of expected losses (Capital at Risk) for the UK banking sector, and via Monte Carlo simulations the stochastic distribution of UK banks’ losses to study the severity and likelihood of tail-events (Conditional Capital at Risk). In the end, we provide insights on the impact of the Covid-19 pandemic on UK banking system’s loss distribution by decomposing the sources of average and tail risks.
    Keywords: Financial network; systemic risk; stress testing; Covid-19 pandemic.
    JEL: D85 G21 G32 L14
    Date: 2022–05–27
  7. By: Francesco de Cunzo; Alberto Petri; Andrea Zaccaria; Angelica Sbardella
    Abstract: We study the empirical relationship between green technologies and industrial production at very fine-grained levels by employing Economic Complexity techniques. Firstly, we use patent data on green technology domains as a proxy for competitive green innovation and data on exported products as a proxy for competitive industrial production. Secondly, with the aim of observing how green technological development trickles down into industrial production, we build a bipartite directed network linking single green technologies at time $t_1$ to single products at time $t_2 \ge t_1$ on the basis of their time-lagged co-occurrences in the technological and industrial specialization profiles of countries. Thirdly we filter the links in the network by employing a maximum entropy null-model. In particular, we find that the industrial sectors most connected to green technologies are related to the processing of raw materials, which we know to be crucial for the development of clean energy innovations. Furthermore, by looking at the evolution of the network over time, we observe that more complex green technological know-how requires more time to be transmitted to industrial production, and is also linked to more complex products.
    Date: 2022–06
  8. By: David Lowing (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A gas distribution network connects consumers to a source in gas. It is managed by a network operator, whose task incurs various costs, some of which may not be attributable to a particular consumer. Assuming that the operator wishes to recover these costs by charging for its services, the problem is then to determine how much each consumer should pay. In other words, how should these costs be shared among consumers. In this paper, we address this problem and propose cost sharing rules that depend on the network and the demands of the consumers. To that end, we adopt a normative approach and resort to three principles: (i) the independence of higher demands principle, (ii) the connection principle and (iii) the uniformity principle. Applying (i) and (ii), we derive the Connection rule and applying (i) and (iii), we derive the Uniform rule. It appears that (ii) and (iii) are incompatible. In order to make a trade-off between these two principles, we propose the Mixed rules, which compromise between the Connection rule and the Uniform rule. For each cost sharing rule, an axiomatic characterization is provided. Then, we show that the Connection rule coincides with the multi-choice Shapley value of a specific multi-choice game derived from the network and the demands of the consumers. Moreover, the Connection rule is in the Core of this specific multi-choice game. Similarly, we show that the Uniform rule coincides with the multi-choice Equal division value and the Mixed rules coincide with the multi-choice Egalitarian Shapley values.
    Keywords: Gas distribution network,Cost sharing rules,Axiomatization,Multi-choice games
    Date: 2022–05–27

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