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on Network Economics |
| By: | Algan, Yann; Dalvit, Nicolo; Do, Quoc-Anh; Le Chapelain, Alexis; Zenou, Yves |
| Abstract: | We examine how social interactions and friendships shape students' political opinions in a natural experiment at Sciences Po, a leading French university specializing in social and political sciences. The quasi-random assignment of students into short-term integration groups before their academic curriculum reduces political opinion gaps and fosters friendship formation. Using same-group membership as an instrumental variable for friendship, we find that after 6 months friendship reduces opinion differences by 50% of the mean opinion gap. Our evidence supports a homophily-enforced mechanism: friendships form among initially politically similar students, leading them to join political associations together, reinforcing their similarity. However, friendship does not significantly influence politically dissimilar pairs. Instead, it reduces opinion divergence without enforcing ideological convergence. |
| Keywords: | Political opinion |
| JEL: | C93 D72 Z13 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20075 |
| By: | Cabrales, Antonio; Pomares, Gema; Ramos Muñoz, David; Sánchez, Angel |
| Abstract: | We study experimentally a new model to study the effect of climate externalities and contractual incompleteness on network formation. We model a network where good/green firms enjoy direct and indirect benefits from linking with one another. Bad/brown firms benefit from having a connection with a good firm, but they are a cost to both direct and indirect connections. In efficient networks the green firms should form large connected components with very few brown firms attached. The equilibrium networks, on the other hand, have many more brown firms attached, and components are also smaller than the efficient ones. Our experiments show that empirical results are broadly in line with the theoretical equilibrium predictions, although the precise quantitative outcomes are different from the theory. |
| Keywords: | Network formation |
| JEL: | C92 D62 D85 Q54 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19933 |
| By: | Giulietti, Corrado; McConnell, Brendon; Zenou, Yves |
| Abstract: | How can crime be disrupted most effectively without increasing resources? To answer this question, we develop a spatial network model to analyse crime diffusion, using London as a case study. Moving beyond traditional hot spot policing, we identify key player neighbourhoods- highly connected areas in the network. Our analysis reveals that while hot spots mainly attract crime locally, key player neighbourhoods predominantly propagate it. Simulations show that targeting the top 10% of key players reduces crime by 10.7% (5.8 percentage points) more than hot spot strategies. This approach offers a cost-effective solution, with potential annual savings exceeding 130 million pounds. |
| JEL: | C23 D85 H50 K42 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20065 |
| By: | Antonio Cabrales; Wenhao Cheng |
| Abstract: | This paper studies how organizations should jointly design evaluation rules and assign workers when performance depends on both effort and non-discretionary advantage. Agents choose effort in positions linked by a competition network, while their effective advantage depends on own type and spillovers through a second network. The planner chooses both the assignment and the effort weight in evaluation. Equilibrium effort rises with a position's Katz-Bonacich centrality and falls with effective advantage. The optimal evaluation rule generally differs from true output. When effort is more important in production, the planner lowers the effort weight and uses negative assortative assignment to strengthen incentives. When advantage is more important, the planner raises the effort weight and uses positive assortative assignment to exploit spillovers. We also study a constraint requiring assignments to be pairwise stable, which creates an output loss depending on the intensity of competition. |
| Keywords: | relative performance evaluation, worker assignment, organizational design, incentives; contests, network games, peer effects, spillovers, assortative matching |
| JEL: | D23 D85 C72 J33 M52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12816 |
| By: | Conconi, Paola; Leone, Fabrizio; Magerman, Glenn; Thomas, Catherine |
| Abstract: | We provide a novel explanation for the dominance of multinational corporations (MNCs) in international trade: MNC affiliates face lower trade frictions in countries that belong to their parental network. Combining rich administrative data from Belgium with data on MNCs’ global affiliate networks, we estimate event studies in a three-dimensional panel with staggered treatment effects, exploiting variation within multinational affiliates in their ownership status and across affiliates in the geographical structure of their parental network. We show that firms acquired by an MNC are more likely to start exporting to and importing from countries that belong—or that are exogenously added—to their parental network. We provide evidence suggesting that the effects increase with knowledge flows within the MNC hierarchy and extend beyond the boundaries of the multinational. In a model of firms’ export and import choices, firm-country-year-level gravity regressions isolate “MNC network effects†from other channels through which multinational ownership can affect firms’ trade participation. Combining the structure of the model with our empirical estimates, we find that MNC network effects have a large impact on new affiliates’ sales and employment growth. |
| Keywords: | Multinational companies; Production networks |
| JEL: | F10 F23 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20014 |
| By: | Skudelny, Frauke; Aliman, Mihai; Regnér, Martin; Sarchi, Cecilia; Valetto, Matteo |
| Abstract: | The commercial real estate (CRE) sector is a source of financial stability risk, yet its financing structures remain poorly understood because of complex corporate group structures and data limitations. This paper investigates the financing networks of the 100 largest CRE groups in the euro area, constructing two distinct networks: one for loan financing and one for bond issuance. The loan network exhibits strong regional clustering, a pronounced home bias and a core-periphery structure. Regional differences in loan financing patterns give rise to geographically concentrated communities of CRE entities with similar characteristics. The backbone of the loanmarket shows limited overlap among banks, both in the set of CRE borrowers they serve and in the size and composition of their loan portfolios, pointing to segmented lending relationships. By contrast, the bond network displays greater interconnectedness, is largely free of home bias and allows access to a diversified investor base. Financial stability implications are assessed through the structural properties of the networks and the identification of systemic nodes. In the loan network, regional clustering may amplify cross-border contagion, while highly central CRE groups in both networks could generate spillovers in distress, shaping credit allocation and systemic risk in the euro area. JEL Classification: G21, G28, R31, D85, C63 |
| Keywords: | commercial real estate, euro area, interconnectedness, network analysis, systemic risk |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2026155 |
| By: | Arturas Juodis; George Kapetanios; Vasilis Sarafidis |
| Abstract: | We develop a novel methodology for estimation and inference in high-dimensional panel network models with latent dual structures. The framework allows outcomes to be affected simultaneously by positive and negative interaction channels, accommodating settings in which some interactions reinforce outcomes while others generate competition and displacement effects. The proposed method identifies and estimates the network directly from the structural model using observed data without the need to pre-specify the network. Network recovery is achieved through a sequential instrumental-variable screening procedure. We establish exact support recovery and oracle-equivalent post-selection inference. An application to U.S. corporate leverage data reveals the coexistence of reinforcing and displacement interactions in firms' financial decisions. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.13862 |
| By: | Manova, Kalina; Moxnes, Andreas; Perelló, Oscar |
| Abstract: | This paper examines intermediation in production networks to unpack the firm attributes and matching costs that govern firm-to-firm networks and the gains from trade. Exploiting rich customs data for Chile, we show that exporters of all sizes use intermediaries, mix trade modes across buyers, and set lower prices on intermediated flows. We rationalize these facts in a model of network formation with suppliers of heterogeneous productivity and matchability, buyers of heterogeneous productivity, and intermediaries that reduce matching costs for a brokerage fee. Empirical evidence on trade activity across firms and countries corroborates the model, and informs how geographic distance, logistics and customs efficiency, formal institutions, and cultural-linguistic similarity shape network costs. Model estimation reveals that sellers’ attributes are negatively correlated, such that intermediaries enable highly productive sellers with low matchability to reach smaller buyers. This amplifies the welfare gains from intermediation due to wider and deeper network connectivity. |
| Keywords: | Production networks; Intermediation; Productivity; Matching costs |
| JEL: | F10 F12 F14 F23 L11 L14 L81 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20044 |
| By: | Sonin, Konstantin |
| Abstract: | Information manipulation is a powerful tool in the hands of any authoritarian leader. Dictators block independent media, censor news, pay influencers, and control citizens' social connections. In our model, citizens acquire information from censored sources or through social networks. Naturally, information manipulation has less impact when consuming news is costly and percolation in the network is low. Less intuitively, it might be optimal for the regime to target peripheral, rather than centrally connected citizens, and the propaganda's maximum impact is when percolation of information is close to zero (the society is atomized) or close to one, but not in-between. |
| Keywords: | Authoritarian regime |
| JEL: | P00 D85 L82 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20320 |
| By: | Jingnan Chen (Department of Economics, University of Exeter); Yixin Chen (Central University of Finance and Economics); Zhixin Dai (School of Finance, Renmin University of China); Tianqi Wei (China University of Political Science and Law); Su Yang (Renmin University of China) |
| Abstract: | Taxpayers rarely observe audit probabilities and must infer changes in enforcement from personal and social experience. We study this process in a laboratory tax-reporting experiment with 568 participants. Each participant faces hidden audit probabilities of 5 percent and 25 percent in randomized order, and we vary peer information across sessions from none to one or two preceding audit outcomes in a sparse network and three in a dense network. Before any peer outcome is transmitted, assignment to either network raises compliance by about 20% relative to no peer information. Once outcomes circulate, compliance in the dense network is approximately twice as responsive to enforcement as without peer information and about 60% more responsive than in the sparse network. This amplification is directional: relative to no peer information, the dense network raises compliance by about 12% after enforcement strengthens but lowers it by about 25% after enforcement weakens. Elicited belief distributions show that broader information reach improves learning about the changed enforcement environment. Higher perceived audit probabilities predict greater subsequent compliance, and the dense network's advantage comes from accumulating more peer signals rather than weighting each signal more heavily. Counterfactual policy exercises show that broader diffusion can reinforce deterrence under strong enforcement but erode it under weak enforcement; a model-based exercise suggests that full disclosure of the audit probability can reduce compliance under both weak and strong enforcement. |
| Keywords: | tax compliance, tax enforcement, social learning, information networks, subjective beliefs |
| JEL: | H26 D83 C91 |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:exe:wpaper:2610 |
| By: | Hou, Ai Jun; Sarno, Lucio; Ye, Xiaoxia |
| Abstract: | We introduce in the theory of Gabaix and Maggiori (2015) a network structure to capture the complexity of the balance sheets of financial intermediaries, using the Leontief inverse-based centrality. We use this framework in a multi-country world with imperfect financial markets to study how currency risk premia are connected to financiers’ risk bearing capacity. Guided by the theory, we construct a Centrality Based Characteristic (CBC), based on the centrality of the trade imbalance network and variance-covariance matrix of currency returns. Sorting currencies on CBC generates a high Sharpe ratio, and the resulting excess returns reflect a novel source of predictability. |
| Keywords: | Carry trade; Network centrality |
| JEL: | F31 F37 G12 G15 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20163 |
| By: | Antonova, Anastasiia; Huxel, Luis; Matvieiev, Mykhailo; Müller, Gernot |
| Abstract: | Imports feature at all stages of production as well as in final consumption, and this is key to how tariff shocks play out. If imposed on imports in upstream sectors, import tariffs lower domestic output in downstream sectors; if imposed downstream, they raise upstream production. The aggregate effect of tariffs can be recessionary or expansionary—depending on the strength of upstream and downstream effects. Tariffs raise inflation no matter what, but how persistently they do so also depends on the network structure. We establish these results in a New Keynesian small open-economy model with an input-output network and provide supporting evidence based on US import tariffs. Simulating the "Liberation Day" tariff package, we find it highly stagflationary. |
| JEL: | F41 E32 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20305 |
| By: | Gong, Xiaodong (University of Canberra); Freyens, Benoit (University of Canberra) |
| Abstract: | We propose a new approach to identifying peer effects that addresses the reflection problem by using the timing of decisions. The approach combines panel data with the ordering of decisions to separate peer influence from simultaneity. Variation in the order of decisions and in exposure to peers provides the basis for identification, allowing estimation of peer effects in settings where standard approaches are not informative. We illustrate the method using a multi-level panel of more than 2, 000 judicial rulings over a 16-year period, where cases are randomly assigned to judges. The data allow us to implement the approach and examine the sources of peer influence. We find heterogeneous and asymmetric responses, with both the magnitude and direction of effects differing across types. |
| Keywords: | peer effects, reflection problem, judicial decisions |
| JEL: | C18 C23 C81 D85 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18808 |
| By: | Paul Ho; Danial Lashkari; Pierre-Daniel G. Sarte |
| Abstract: | A production sector's size, as measured by its Domar weight, captures the contemporaneous aggregate effect of its productivity shocks. However, the presence of investment means that these aggregate effects can persist over time. We derive a dynamic generalization of Hulten's theorem in an environment that features sectoral linkages in both intermediate-inputs and investment. This generalization follows from production efficiency alone, and decomposes each sector's Domar weight into an impact and a propagation component. The relative size of these components then determines how persistent the aggregate effects of sectoral shocks are, but cannot be known absent information on the economy's production structure. We show in a tractable structural model that future GDP responses to sectoral shocks can alternatively be described as weighted sums of all sectors' Domar weights, with weights primarily dictated by the network positions and capital shares of downstream sectors. Quantifying the model with U.S. production data, we find that i) Domar weights become progressively less informative about the aggregate effects of sectoral shocks as the horizon lengthens and ii) over a three-year horizon, goods-producing sectors have larger cumulative aggregate effects than service-producing sectors, despite goods only accounting for less than one-third of GDP. Model-free local projections of U.S. GDP growth on sectoral TFP growth confirm these findings. |
| Keywords: | sectoral shocks; production networks; investment linkages; dynamic propagation |
| JEL: | E22 E23 E32 O41 C67 |
| Date: | 2026–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:103603 |
| By: | Clochard Gwen-Jirō; Carlos Gomez-Gonzalez; Marco Henriques Pereira |
| Abstract: | This paper investigates how managers leverage their professional networks (former employees) to influence three key dimensions: hiring, responsibilities, and performance. We use rich transactional data in professional football (soccer) in Europe: over 6k coaches, 80k players, and 100k movements. First, we find that managers rely heavily on their networks for hiring, particularly for non-star workers, and at a somewhat lower cost. Second, managers give network-hired workers more responsibilities, particularly in the first year. Third, network-recruited workers are significantly positively associated with performance. We conduct additional heterogeneity analyses and robustness tests, and discuss generalizability and implications for managers in other industries. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1275r |
| By: | Asef Y{\i}lk{\i} |
| Abstract: | This paper proposes a novel asset pricing framework that augments large language model (LLM) embeddings of annual report disclosures with supply chain knowledge graph (KG) propagation. Using FinBERT embeddings of 10-K MD&A sections for 255 S&P 500 firms over 2011-2025, two sets of return predictors are constructed: direct LLM embeddings and network-augmented embeddings, where firm-level signals propagate through inter-firm linkages. Fama-MacBeth cross-sectional regressions reveal that the network-augmented factor (net_pc_5) carries significant return predictability with a Newey-West t-statistic of -2.64, even after controlling for momentum, volatility, and firm size. A long-short portfolio sorted on net_pc_5 achieves an annualized Sharpe ratio of 0.86 and a Fama-French five-factor alpha of 7.27% per year (t = 2.30). The predictive power survives out-of-sample tests, placebo experiments, sector-neutralization, and subsample analysis. The findings suggest that inter-firm network structure contains pricing-relevant information beyond firm-level textual disclosures. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.29290 |
| By: | Andrew G. Ross; Julia Gershenzon; Andreas Kleefeld |
| Abstract: | Assessments of structural change and economic transition dynamics, such as those arising in the energy transition, depend on internally consistent qualitative scenarios specifying the policy environment, technology mix, governance arrangements, and demand conditions. Cross-Impact Balance (CIB) analysis derives such socio-technical scenarios as fixed-point attractors of an expert-elicited interdependency network, supplying structural inputs upon which assessment models (including energy system optimisation, agent-based, and general equilibrium frameworks) can draw. Standard CIB, however, delivers only this equilibrium catalogue, leaving four structural questions unanswered: how much network-weighted effort a given transition requires; which components are the true system-wide levers once indirect influence chains are counted; in what sequence the system adjusts; and how the network at a given attractor responds to an external shock. This paper extends CIB through Linear Response Theory, exploiting a structural isomorphism between the CIB drift matrix and the Leontief input-output technology matrix. Four analytical objects are derived in closed form: the Type I cross-impact multiplier, which aggregates all direct and indirect influence chains; the perturbation budget, a network-weighted and directionally asymmetric measure of transition effort; the impulse response function, which traces descriptor adjustment sequences and feedback-induced overshoots; and the unit-impulse shock profile, which characterises attractor-specific network sensitivity and yields a direct measure of structural resilience and susceptibility. The framework is applied empirically to an energy-transition cross-impact matrix, yielding all four objects for five structural equilibria, and transfers to any domain in which pairwise influence scores encode structural interdependencies. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.12414 |