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on Network Economics |
| By: | Tom Hutchcroft; Olga Rospuskova; Omer Tamuz |
| Abstract: | We study agents playing a pure coordination game on a large social network. Agents are restricted to coordinate locally, without access to a global communication device, and so different regions of the network will converge to different actions, precluding perfect coordination. We show that the extent of this inefficiency depends on the network geometry: on some networks, near-perfect efficiency is achievable, while on others welfare is strictly bounded away from the optimum. We provide a geometric condition on the network structure that characterizes when near-efficiency is attainable. On networks in which it is unattainable, our results more generally preclude high correlations between outcomes in a large spectrum of dynamic games. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12571 |
| By: | Krishna Dasaratha; Anant Shah |
| Abstract: | Consider a network game with linear best responses and spillovers between players, and let agents endogenously choose their links. A planner considers interventions to subsidize actions and/or links between players, aiming to maximize a welfare function depending on equilibrium actions. The structure of the optimal intervention depends on whether links provide non-negative intrinsic value to agents. When they do, it is optimal to focus only on subsidizing actions. When the intrinsic value of links is negative, we give conditions for including link subsidies to be optimal. This reverses the basic structure of the optimal intervention in settings with exogenous links. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12897 |
| By: | Alapini, Gefry B.; Djima, Jesugnon E.; Zhazhin, Kirill |
| Abstract: | We replicate Horváth (2025), experimentally studying link formation and effort in a linear-quadratic game with positive externalities. Across five treatments, subjects exert 38-97 percent more effort than the Nash benchmark yet create too few links, depressing payoffs. In groups of five, the complete network appears in roughly 25 percent of final rounds (66-76 percent if deviations of ±2 links are allowed); in groups of nine it is almost never reached. Larger groups and lower link costs fail to improve connectivity. Following the original procedures and analysis step-for-step, our replication reproduces the sign, magnitude, and statistical significance of every reported effect. Robustness checks-learning, benefit salience, group benchmarking, alternative clustering, and multiple link-formation specifications- confirm the core pattern: persistent over-provision of effort coupled with under-provision of links, generating substantial efficiency losses. |
| Keywords: | network formation, efficiency, linear-quadratic payoffs, experiment |
| JEL: | D85 D62 C92 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:280 |
| By: | Joris Ebbers; Wouter Stam (UvA - Universiteit van Amsterdam = University of Amsterdam); Tom Elfring (EM - EMLyon Business School) |
| Abstract: | In this study, we therefore address the following research question: How do entrepreneurs in ESOs capture and create value through different types of peer ties, and what explains why some act as givers while others act as takers? We investigate this question in the context of an incubator. Specifically, we examine three types of direct ties related to knowledge exchange (ideas for product development, information about market trends, and management advice) and four types of referral ties through which incubatees gain potential new contacts (customers, suppliers, personnel, and investors). Our research not only explores how incubatees capture value by being the receivers (or "takers") of knowledge and referrals but also identifies which incubatees create value for their peers by acting as providers (or "givers") of these resources. To analyze this bi-directionality (Bergman and McMullen, 2022), we use social network analysis and identify takers and givers through incubatees' out-degree and in-degree network centrality. To explain heterogeneity in network positions, we build on the idea that networking actions represent effectual responses to uncertainty (Engel et al., 2017). In particular, we examine how founder-, venture-, and market-level sources of uncertainty drive incubatees' network structures and outcomes. |
| Keywords: | incubator, network, entrepreneur, venture, Entrepreneurial support organization |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05489670 |
| By: | Bastien Buchwalter; Francis X. Diebold; Kamil Yilmaz |
| Abstract: | Network connections, both across and within markets, are central in countless economic contexts. In recent decades, a large literature has developed and applied flexible methods for measuring network connectedness and its evolution, based on variance decompositions from vector autoregressions (VARs), as in Diebold and Yilmaz (2014). Those VARs are, however, typically identified using full orthogonalization (Sims, 1980), or no orthogonalization (Koop, Pesaran, and Potter, 1996; Pesaran and Shin, 1998), which, although useful, are special and extreme cases of a more general framework that we develop in this paper. In particular, we allow network nodes to be connected in "clusters", such as asset classes, industries, regions, etc., where shocks are orthogonal across clusters (Sims style orthogonalized identification) but correlated within clusters (Koop-Pesaran-Potter-Shin style generalized identification), so that the ordering of network nodes is relevant across clusters but irrelevant within clusters. After developing the clustered connectedness framework, we apply it in a detailed empirical exploration of sixteen country equity markets spanning three global regions. |
| JEL: | G1 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34796 |
| By: | Eshraghi, Mohsen |
| Abstract: | This paper investigates how microeconomic origins of liquidity shocks at the firm level influence aggregate output and financial stability in a network economy with inter-sectoral linkages. We use firm-level balance sheet data to construct two liquidity measures: the quick ratio, capturing firms’ internal short-term liquidity, and a network-based measure, capturing inter-sectoral network structure of liquidity flows derived from receivables and payables. Using sector-level aggregates, we apply a Structural Vector Autoregression (SVAR) model to examine the dynamic responses of GDP, the repo rates, the quick ratio, and the network measure to liquidity shocks. We further decompose forecast error variance to assess the relative contribution of each shock to business-cycle fluctuations. The main results indicate that the network effect is the dominant driver of businesscycle fluctuations, followed by the quick ratio, with both outweighing the remaining endogenous variables. The findings are relevant for macroprudential oversight, highlighting the importance of monitoring firms’ liquidity imbalances and network structure for financial stability and economic resilience. |
| Keywords: | Firm liquidity; business cycle; macroeconomic fluctuations; Structural VAR; input–output linkages; intersectoral networks |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:esx:essedp:42809 |
| By: | Dohyun Ahn; Agostino Capponi |
| Abstract: | Valuing corporate bonds in systemic economies is challenging due to intricate webs of inter-institutional exposures. When a bank defaults, cascading losses propagate through the network, with payments determined by a system of fixed-point equations lacking closed-form solutions. Standard Monte Carlo methods cannot capture rare yet critical default events, while existing rare-event simulation techniques fail to account for higher-order network effects and scale poorly with network size. To overcome these challenges, we propose a novel approach -- Bi-Level Importance Sampling with Splitting -- and characterize individual bank defaults by decoupling them from the network's complex fixed-point dynamics. This separation enables a two-stage estimation process that directly generates samples from the banks' default events. We demonstrate theoretically that the method is both scalable and asymptotically optimal, and validate its effectiveness through numerical studies on empirically observed networks. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12770 |
| By: | Albert Tan; Sadegh Shirani; James Nordlund; Mohsen Bayati |
| Abstract: | Estimating total treatment effects in the presence of network interference typically requires knowledge of the underlying interaction structure. However, in many practical settings, network data is either unavailable, incomplete, or measured with substantial error. We demonstrate that causal message passing, a methodology that leverages temporal structure in outcome data rather than network topology, can recover total treatment effects comparable to network-aware approaches. We apply causal message passing to two large-scale field experiments where a recently developed bipartite graph methodology, which requires network knowledge, serves as a benchmark. Despite having no access to the interaction network, causal message passing produces effect estimates that match the network-aware approach in direction across all metrics and in statistical significance for the primary decision metric. Our findings validate the premise of causal message passing: that temporal variation in outcomes can serve as an effective substitute for network observation when estimating spillover effects. This has important practical implications: practitioners facing settings where network data is costly to collect, proprietary, or unreliable can instead exploit the temporal dynamics of their experimental data. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.04230 |
| By: | Yan Hu (School of Economics, University of Edinburgh); Stephan Maurer (School of Economics, University of Edinburgh) |
| Abstract: | In this paper, we study this question using the historical example of China’s first modern bureaucratic organization, the Chinese Maritime Customs Service. Drawing on newly digitized personnel records from 1876-1911, we first show that the Chinese clerks employed by the service were predominantly Cantonese. Using the plausibly exogenous transfers of clerks across stations, we then estimate that a non-Cantonese (minority) clerk benefited significantly from meeting at least one colleague from his same province and dialect. Such connections led to faster promotion and a 5.6% salary increase, with even stronger effects when meeting a clerk who was either senior or of high quality. |
| Keywords: | Chinese Maritime Customs Service, social connections, wages, promotion, minorities. |
| JEL: | J15 J31 J45 N35 N75 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:edn:esedps:325 |
| By: | Martin, David (LPTMC, Sorbonne Université, Paris); Moran, José; Panja, Debabrata; Bouchaud, Jean-Philippe |
| Abstract: | We study the disequilibrium dynamics of a stylised model of production networks in which firms use perishable and non-substitutable intermediate inputs, so that adverse idiosyncratic productivity shocks can trigger downstream shortages and output losses. To protect against such disruptions, firms hold precautionary inventories that act as buffer stocks. We show that, for a given dispersion of firm-level productivity shocks, there exists a critical level of inventories above which the economy remains in a stable stochastic steady state. Below this critical level, the system becomes fragile, i.e., it becomes prone to system-wide crises. As this resilience–fragility boundary is approached from above, aggregate output volatility rises sharply and diverges, even though shocks are purely idiosyncratic. Because inventories are costly, competitive pressures induce firms to economize on buffers. Although we do not explicitly model such costs, we argue that the resulting behaviour of individual firms drives the system close to criticality, generating persistent excess macroeconomic volatility — in other words, "small shocks, large cycles" — in line with other settings where efficiency and resilience are in tension with each other (Hynes et al., 2022; Moran et al., 2025). In the language of phase transitions, the resilient-to-fragile transition is continuous (supercritical): the economy exhibits a well-defined stochastic equilibrium with finite volatility on one side of the boundary, while beyond it the probability of a collapse in finite time tends to one. We characterize this transition primarily through numerical simulations and derive an analytical description in a high-perishability, high-connectivity limit. Finally, we show that the ability to rapidly reallocate demand across alternative suppliers shifts the critical boundary and can eliminate the fragile regime, underscoring the macroeconomic importance of inventory policies and supplier diversification for production network resilience. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2026-05 |