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on Network Economics |
| By: | De Jonghe, Olivier; Lewis, Daniel |
| Abstract: | We propose a new model in which relationship-specific effects or shocks are identified in a bipartite network under mild covariance restrictions, generalizing the influential Abowd et al. (1999) framework. For example, separate demand shocks are identified for each bank from which a firm borrows. We show how previous approaches break down when confronted with such heterogeneity, while our novel identification strategy yields a simple estimator that is consistent and asymptotically normal, under weaker network density assumptions than previous approaches. The methodology performs well in empirically-calibrated simulations. We apply our approach to identify relationship-level credit demand and supply shocks for thousands of firms and banks across nine Euro-area countries and three distinct economic episodes. We formally reject the Abowd et al. (1999) assumptions in nearly every country-period and show that within-firm/bank shock variation is of comparable scale to between firm/bank variation. We document considerable bias in Abowd et al. (1999) style estimates and associated regressions, while finding significant deleterious effects of the post-2022 monetary contraction on exposed firms. We highlight novel heterogeneity in the transmission of monetary policy. JEL Classification: C33, C58, E44, G21, G30 |
| Keywords: | corporate credit, demand shock, higher moments, identification, networks, networks, supply shock, two-way fixed effects |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263238 |
| By: | Giacomo Benati (Departament d'Història Econòmica, Institucions, Política i Economia Mundial & IPERC Universitat de Barcelona); Sergi Lozano (Departament d'Història Econòmica, Institucions, Política i Economia Mundial & UBICS Universitat de Barcelona) |
| Abstract: | Although long-distance interaction dates back to Prehistory, the scale and complexity of exchange during the Urban Revolution are unparalleled. How did early urban societies organize transcontinental trade without modern transportation, financial systems, or institutional infrastructures? To answer this, we formally analyze the Uruk Expansion in Chalcolithic Mesopotamia (~4000–3000 BCE), arguably the first episode of “globalization†in human history. Using network analysis on a new dataset of over 1, 700 settlements and routes, we show that Uruk’s early river-based supply chains evolved through diaspora-driven bridging ties that generated small-world network structures, fostering integration and system-wide connectivity. This transformation—from dendritic to integrated networks—challenges dependency-based explanations and instead supports a market formation model of early urban exchange. |
| Keywords: | Urban revolution, Uruk, Market formation, Network science |
| JEL: | N25 N75 N95 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ewp:wpaper:493web |
| By: | Wout de Vos (Tilburg University - Department of Econometrics and Operations Research - Tilburg University [Netherlands]); Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Charles University - Department of Applied Mathematics and Institute of Theoretical Computer Science - UK - Univerzita Karlova [Praha, Česká republika] = Charles University [Prague, Czech Republic] = Université Charles [Prague, Republique tchèque], 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 - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - 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 - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris) |
| Abstract: | In the present paper, we study opinion dynamics in a social network, where individuals only listen to those with opinion not farther away than a given threshold from their own opinion (known as bounded confidence models, proposed by Hegselmann and Krause). It is well known that in bounded confidence models consensus does not always exist, and that agents split in clusters (polarization), with convergence to consensus in each cluster. We are precisely interested in the effect of bounded confidence on polarization in the network. Our main focus concerns the formation of clusters and their number, as well as its non-monotonicity with respect to the value of the threshold. First, a framework with a finite number of agents is considered. We study analytically disintegration of various types of opinion chains (clusters), and investigate by simulation the likelihood of chains of a certain length and their disintegration. Next, we examine the (non-)monotonicity of the number of clusters with respect to the threshold for a given initial vector of opinions and in expectation. Finally, we analyse in a formal way the formation of clusters in a model with a continuum of agents. |
| Keywords: | Opinion dynamics, Polarization, Clusters, Bounded confidence, Non-monotonicity, Network formation, Continuous opinion |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-05611642 |
| By: | Francesca Asja Trento; Andrea Melillo; Mounu Prem; Luigi Pascali |
| Abstract: | What role did the Republic of Letters play in Europe's transition to sustained innovation? We combine a corpus of digitized correspondence within the Republic of Letters with European aristocratic genealogies, historical postal routes, and a database of notable individuals to trace the diffusion and consequences of Enlightenment correspondence between 1600 and 1850. We first show that the Republic spread, in part, through aristocratic kinship networks: aristocrats connected to already participating peers entered earlier, and their probability of entry declined sharply with network distance. To isolate a causal channel, we exploit changes in postal distances along pre-existing kinship paths to already-inoculated aristocrats, while controlling directly for local postal access. We then aggregate this variation to European grid cells and estimate the effect of exposure to the Republic on the rise of applied science, innovation, and economic activity. Cells instrumented into the Republic experienced a near- doubling in applied scientists and inventors roughly three decades after first contact, with no pretrends and effects concentrated in scientific and technical correspondence rather than religion or philosophy. These findings suggest that the Republic of Letters helped reshape the geography of innovation before industrialization. |
| Keywords: | economic growth, Enlightenment, innovation, Republic of Letters, social networks, The Great Divergence, useful knowledge |
| JEL: | N13 O31 O33 Z13 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1579 |
| By: | Huang, Hanwei; Manova, Kalina Bojidarova; Perello Perez, Oscar Ignacio; Pischz, Frank |
| Abstract: | How do global production networks and market structure interact to shape the welfare effects of trade and competition policy? We develop a model with two-sided firm heterogeneity, matching frictions, and imperfect supplier competition. More productive buyers match with more suppliers, inducing tougher competition among them, lower input costs, and higher profits. Entry upstream thus benefits primarily high-productivity buyers, while lower trade or matching costs favor mid-productivity buyers. Reduced-form evidence confirms that larger French and Chilean firms import higher quantities at lower prices as more Chinese suppliers enter, and that suppliers charge diversified buyers lower markups. We estimate the model by adapting recent methods for combinatorial, discrete-choice problems. Counterfactuals reveal that the interaction of endogenous networks and markups significantly amplifies the gains from policies that facilitate supplier entry or firm matching, as well as from modern trade agreements that combine trade cost cuts with such policies. |
| Keywords: | Production networks;Matching frictions;Imperfect competition;Gains from trade;Trade;Competition policy |
| JEL: | D24 F10 F12 F14 L11 L22 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14594 |
| By: | Ryan Niladri Banerjee; Hyun Song Shin; Jose María Vidal Pastor |
| Abstract: | The elastic supply of money through overdrafts and credit lines overcomes cash-in-advance con straints, enabling large-value payments without waiting for incoming cash. This elasticity is crucial in long supply chains, where cash-in-advance constraints could otherwise cause gridlock. In essence, money elasticity and the supply of working capital are two sides of the same coin, with undrawn credit lines serving as the operative link. This paper examines how shifts in financial conditions influence money elasticity and, in turn, impact firm activity within produc tion networks. Using granular firm-level data, we demonstrate that production-network-driven working capital needs introduce a cyclical element that dances to the tune of financial conditions. Tighter conditions, such as rising credit spreads or a stronger US dollar, significantly reduce output, with spillovers through production networks amplifying the effects. These findings underscore the importance of money elasticity in supporting economic stability. |
| Keywords: | money elasticity, working capital, credit lines, financial conditions, input-output linkages |
| JEL: | E23 E32 E41 E44 E51 F65 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1350 |
| By: | David Ryz\'ak; Tom\'a\v{s} Kroupa |
| Abstract: | We introduce a class of cooperative games induced by weighted directed graphs. Specifically, the coalitional value combines an internal interaction term given by the induced subgraph game with an external component based on minimal incoming edges from outside the coalition. The resulting game has a convenient representation in terms of unanimity games. This representation enables closed-form polynomial-time formulas for the Shapley and Banzhaf values. We further establish that the game has a nonempty core and is totally balanced. The class of such games therefore provides an analytically and computationally tractable example of structured network- induced cooperative games in which stability-based allocations and fairness-based solution concepts do not coincide. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.18157 |