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on Network Economics |
| By: | A.C. Campbell; Filipp Ushchev; Yves Zenou |
| Abstract: | We develop a model of the process of entry under social learning via word-of-mouth (WOM). An incumbent’s product is known to the consumers, while the success of a potential entrant hinges on generating consumer awareness of the entrant’s product through WOM. We model WOM as a percolation process on a random graph. We show that whether an entrant can gain a non-negligible level of awareness depends on the social network structure via two sufficient statistics, which are functions of the first three factorial moments of the degree distribution. We categorize the different pricing equilibria into the classical blockaded, deterred, and accom- modated entry taxonomy. Under deterred entry, our model produces a model of limit pricing by an incumbent to prevent an entrant gaining a non-negligible level of awareness. By focus- ing on multinomial logit demand and on a mixed-Poisson degree distribution, we show that increasing the network density shifts the pricing equilibrium from blockaded to deterred and, finally, to accommodated entry. Using numerical simulations, we also show that the aggregate consumer surplus may be non-monotonic with respect to network density. Finally, if the in- cumbent has knowledge about the consumer’s number of friends and can charge personalized prices, we find that it is optimal for the incumbent to charge lower prices to more-connected consumers. |
| Keywords: | word of mouth, social learning, random network, limit pricing, entry |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/387717 |
| By: | René van den Brink (VU University Amsterdam and Tinbergen Institute); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, 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 nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | This paper aims to connect the social network literature on centrality measures with the economic literature on von Neumann-Morgenstern expected utility functions using cooperative game theory. The social network literature studies various concepts of network centrality, such as degree, betweenness, connectedness, and so on. This resulted in a great number of network centrality measures, each measuring centrality in a different way. In this paper, we aim to explore which centrality measures can be supported as von Neumann-Morgenstern expected utility functions, reflecting preferences over different network positions in different networks. Besides standard axioms on lotteries and preference relations, we consider neutrality to ordinary risk. We show that this leads to a class of centrality measures that is fully determined by the degrees (i.e. the numbers of neighbours) of the positions in a network. Although this allows for externalities, in the sense that the preferences of a position might depend on the way how other positions are connected, these externalities can be taken into account only by considering the degrees of the network positions. Besides bilateral networks, we extend our result to general cooperative TU-games to give a utility foundation of a class of TU-game solutions containing the Shapley value. |
| Keywords: | group decisions and negotiations, weighted graph, degree centrality, von Neumann-Morgenstern expected utility function, cooperative game |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:pseptp:halshs-04188289 |
| By: | Vincent Boucher; Michelle Rendall; Filipp Ushchev; Yves Zenou |
| Abstract: | There is substantial empirical evidence showing that peer effects matter in many activities. The workhorse model in empirical work on peer effects is the linear-in-means (LIM) model, whereby it is assumed that agents are linearly affected by the mean action of their peers. We develop a new general model of peer effects that relaxes the linear assumption of the best-reply functions and the mean peer behavior and that encompasses the spillover, conformist model, and LIM model as special cases. Then, using data on adolescent activities in the United States, we structurally estimate this model. We find that for many activities, individuals do not behave according to the LIM model. We run some counterfactual policies and show that imposing the mean action as an individual social norm is misleading and leads to incorrect policy implications. |
| Keywords: | Spillovers, conformism, structural estimation, policies |
| Date: | 2024–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/387754 |
| By: | Luca Colombo (ESC [Rennes] - ESC Rennes School of Business); Paola Labrecciosa (ESSCA - ESSCA – École supérieure des sciences commerciales d'Angers = ESSCA Business School); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We take a novel approach based on differential games to the study of criminal networks. We extend the static crime network game (Ballester et al., 2006, 2010) to a dynamic setting where criminal activities negatively impact the accumulation of total wealth in the economy. We derive a Markov Feedback Equilibrium and show that, unlike in the static crime network game, the vector of equilibrium crime rates is not necessarily proportional to the vector of Bonacich centralities. Next, we conduct a comparative dynamic analysis with respect to the network size, the network density, and the marginal expected punishment, finding results in contrast with those arising in the static crime network game. We also shed light on a novel issue in the network theory literature, i.e., the existence of a voracity effect. Finally, we study the problem of identifying the optimal target in the population of criminals when the planner's objective is to minimize aggregate crime at each point in time. Our analysis shows that the key player in the dynamic and the static setting may differ, and that the key player in the dynamic setting may change over time. |
| Keywords: | Differential games, Markov equilibrium, Criminal networks, Bonacich centrality, Key player |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:pseptp:hal-04850675 |
| By: | Andreoni, Antonio; Anzolin, Guendalina; Labrunie, Mateus; Sartorello Spinola, Danilo |
| Abstract: | This research pioneers the construction of a novel Digital Production Technology Classification (DPTC) based on the latest Harmonised Commodity Description and Coding System (HS2017) of the World Customs Organisation. The DPTC enables the identification and comprehensive analysis of 127 tradable products associated with digital production technologies (DPTs). The development of this classification offers a substantial contribution to empirical research and policy analysis. It enables an extensive exploration of international trade in DPTs, such as the identification of emerging trade networks comprising final goods, intermediate components, and instrumentation technologies and the intricate regional and geopolitical dynamics related to DPTs. In this paper, we deploy our DPTC within a network analysis methodological framework to analyse countries' engagements with DPTs through bilateral and multilateral trade. By comparing the trade networks in DPTs in 2012 and 2019, we unveil dramat ic shifts in the global DPTs' network structure, different countries' roles, and their degree of centrality. Notably, our findings shed light on China's expanding role and the changing trade patterns of the USA in the digital technology realm. The analysis also brings to the fore the increasing significance of Southeast Asian countries, revealing the emergence of a regional hub within this area, characterised by dense bilateral networks in DPTs. Furthermore, our study points to the fragmented network structures in Europe and the bilateral dependencies that developed there. Being the first systematic DPTC, also deployed within a network analysis framework, we expect the classification to become an indispensable tool for researchers, policymakers, and stakeholders engaged in research on digitalisation and digital industrial policy. |
| JEL: | O14 O33 F14 |
| Date: | 2023–12–06 |
| URL: | https://d.repec.org/n?u=RePEc:unm:unumer:2023044 |
| By: | Lasse F. Henriksen; Jacob Lunding; Christoph H. Ellersgaard; Anton G. Larsen |
| Abstract: | Who represents the corporate elite in democratic governance? Prior studies find a tightly integrated "inner circle" network representing the corporate elite politically across varieties of capitalism, yet they all rely on data from a highly select sample of leaders from only the largest corporations. We cast a wider net. Analyzing new data on all members of corporate boards in the Danish economy (200k directors in 120k boards), we locate 1500 directors that operate as brokers between local corporate networks. We measure their network coreness using k-core detection and find a highly connected core of 275 directors, half of which are affiliated with smaller firms or subsidiaries. Analyses show a strong positive association between director coreness and the likelihood of joining one of the 650 government committees epitomizing Denmark's social-corporatist model of governance (net of firm and director characteristics). The political network premium is largest for directors of smaller firms or subsidiaries, indicating that network coreness is a key driver of business political representation, especially for directors without claims to market power or weight in formal interest organizations. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.17209 |
| By: | Zhesheng Qiu; Yicheng Wang; Le Xu; Francesco Zanetti |
| Abstract: | This paper studies the design of monetary policy in small open economies with domestic and cross-border production networks and nominal rigidities. The monetary policy that closes the domestic output gap is nearly optimal and is implemented by stabilizing the aggregate inflation index that weights sectoral inflation according to the sector’s roles as a supplier of inputs and a net exporter of products within the international production networks. To close the output gap, monetary policy should assign large weights to inflation in sectors with small direct or indirect (i.e., via the downstream sectors) import shares and failing to account for the cross-border production networks overemphasizes inflation in sectors that export intensively directly and indirectly (i.e., via the downstream sectors). We validate our theoretical results using the World Input-Output Database and show that the monetary policy that closes the output gap outperforms alternative policies that abstract from the openness of the economy or the input-output linkages. |
| Keywords: | production networks, small open economy, monetary policy |
| JEL: | C67 E52 F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11613 |
| By: | Maarten van 't Riet; Arjan Lejour; Arjan M. Lejour |
| Abstract: | Analysis of the international network of double tax treaties reveals a large potential for tax avoidance. Developing countries are, on average, not more likely to suffer from tax revenue losses than other countries. Yet, this average masks the fact that several countries, such as Bangladesh, Egypt, Indonesia, Kenya, Uganda and Zambia, are vulnerable to substantial potential losses of withholding tax revenue by treaty shopping. The analysis combines tax parameters of more than a hundred countries with an algorithm from network theory, which simulates the tax minimizing behaviour of multinational enterprises. We introduce the notion of potentially aggressive tax treaties. These are the key treaties in treaty shopping routes, that may lead to substantial tax revenue losses in developing countries. Moreover, the treaty partners are often in a prime position to top-up tax undertaxed profits of developing countries that offer tax incentives to attract investment, thus nullifying the incentive effects. |
| Keywords: | tax treaties, treaty shopping, developing countries, network analysis, withholding taxes, aggressive tax treaties, global minimum tax |
| JEL: | F23 H25 H26 O10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11641 |
| By: | Clochard Gwen-Jiro; Carlos Gomez-Gonzalez; Marco Henriques Pereira |
| Abstract: | Acquiring skilled workers can be a key comparative advantage for firms. However, this process involves much uncertainty that firms need to navigate. Leveraging managers' social networks can help reduce search frictions, improve match quality, and boost firm performance. In this paper, we investigate the role of managers’ networks on three dimensions of individual and organizational outcomes: hiring, responsibilities, and performance. We do so by leveraging the availability of rich transactional data in professional football (soccer) in Europe. Our data covers both men's and women's football, comprising over 6k coaches, 80k players, and 100k movements between teams. First, we find that managers rely heavily on their networks for hiring decisions, particularly for non-star workers, and network-based recruiting can be done more cheaply than external hiring. Second, managers give their network-hired workers more responsibilities by allowing them more game time, particularly in the first season. Third, we find that increasing the number of network-recruited workers is associated with significantly higher team performance. These patterns hold consistently across both men's and women's football. We discuss the generalizability of our results and implications for managers in other industries. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1275 |
| By: | Tessmann, Ruben; Elbert, Ralf |
| Abstract: | Our knowledge on differences in business model characteristics of thriving and failing Multi-Sided Platforms in competitive B2B networks (B2B-MSP) and potential influences of increasing governmental involvement remains fragmented. This study develops a taxonomy to classify special B2B-MSP with varying governmental influence in the supply chain and transportation context, viz. Port and Cargo Community Systems (CS). Based on the classification of 44 international CS, we identify four archetypes using cluster analysis. The taxonomy provides practitioners with a differentiated view on the configuration options of CS business models including the involvement of governmental institutions, while the presented archetypes contribute an aggregated view of CS business models. The statistical analysis of our results provides initial explanatory approaches on CS business model dimension interdependencies, thereby laying the basis for a deeper understanding of sectoral and geographic differences of B2B-MSP and their diffusion dynamics as well as facilitating a higher contextualization of future research. |
| Date: | 2025–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:152445 |
| By: | Kundu, Shohini; Vats, Nishant |
| Abstract: | This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the US with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns. Our findings contribute to explaining the Great Moderation and provide empirical support for theories that predict that banking integration facilitates the insurance of region-specific risk and the efficient allocation of resources as markets become more complete. JEL Classification: E32, F36, G21 |
| Keywords: | business cycles, economic growth, financial integration, great moderation, idiosyncratic shocks, regional economics |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253019 |
| By: | Yun-Shi Dai; Peng-Fei Dai; St\'ephane Goutte; Duc Khuong Nguyen; Wei-Xing Zhou |
| Abstract: | Stable and efficient food markets are crucial for global food security, yet international staple food markets are increasingly exposed to complex risks, including intensified risk contagion and escalating external uncertainties. This paper systematically investigates risk spillovers in global staple food markets and explores the key determinants of these spillover effects, combining innovative decomposition-reconstruction techniques, risk connectedness analysis, and random forest models. The findings reveal that short-term components exhibit the highest volatility, with futures components generally more volatile than spot components. Further analysis identifies two main risk transmission patterns, namely cross-grain and cross-timescale transmission, and clarifies the distinct roles of each component in various net risk spillover networks. Additionally, price drivers, external uncertainties, and core supply-demand indicators significantly influence these spillover effects, with heterogeneous importance of varying factors in explaining different risk spillovers. This study provides valuable insights into the risk dynamics of staple food markets, offers evidence-based guidance for policymakers and market participants to enhance risk warning and mitigation efforts, and supports the stabilization of international food markets and the safeguarding of global food security. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.15173 |