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on Network Economics |
| By: | Antonio Cabrales; Gema Pomares; David Ramos Muñoz; Angel Sánchez |
| 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, climate change, contractual externalities, efficiency and equilibrium |
| JEL: | C92 D62 D85 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11663 |
| By: | Angelo Mele |
| Abstract: | Exponential random graph models (ERGMs) are very flexible for modeling network formation but pose difficult estimation challenges due to their intractable normalizing constant. Existing methods, such as MCMC-MLE, rely on sequential simulation at every optimization step. We propose a neural network approach that trains on a single, large set of parameter-simulation pairs to learn the mapping from parameters to average network statistics. Once trained, this map can be inverted, yielding a fast and parallelizable estimation method. The procedure also accommodates extra network statistics to mitigate model misspecification. Some simple illustrative examples show that the method performs well in practice. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.01810 |
| By: | Mark Paddrik; Stathis Tompaidis |
| Abstract: | A model and empirical tests show that the density of the intermediation network impacts dealer-provided liquidity and affects the cost of trade differentially (Working Paper no. 24-01). |
| Keywords: | credit default swaps, dealers, intermediation costs, liquidity, OTC trading networks |
| Date: | 2024–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:wpaper:24-01 |
| By: | Astudillo-Estévez, Pablo; Bacilieri, Andrea |
| Abstract: | There is a large consensus on the fundamental role of firm-level supply chain networks in macroeconomics. However, data on supply chains at the fine-grained, firm level are scarce and frequently incomplete. For listed firms, some commercial datasets exist but only contain information about the existence of a trade relationship between two companies, not the value of the monetary transaction. We use a recently developed maximum entropy method to reconstruct the values of the transactions based on information about their existence and aggregate information disclosed by firms in financial statements. We test the method on the administrative dataset of Ecuador and reconstruct a commercial dataset (FactSet). We test the method's performance on the weights, the technical and allocation coecients (microscale quantities), two measures of firms' systemic importance and GDP volatility. The method reconstructs the distribution of microscale quantities reasonably well but shows diverging results for the measures of firms' systemic importance. Due to the network structure of supply chains and the sampling process of firms and links, quantities relying on the number of customers firms have (out-degrees) are harder to reconstruct. We also reconstruct the input-output table of globally listed firms and merge it with a global input-output table at the sector level (the WIOD). Differences in accounting standards between national accounts and firms' financial statements significantly reduce the quality of the reconstruction. |
| Keywords: | Network reconstruction, supply chain, production network, input-output table, maximum entropy, missing information |
| JEL: | C80 D57 E32 L14 F12 |
| Date: | 2023–05 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2023-05 |
| By: | Konrad Menzel |
| Abstract: | In contrast to problems of interference in (exogenous) treatments, models of interference in unit-specific (endogenous) outcomes do not usually produce a reduced-form representation where outcomes depend on other units' treatment status only at a short network distance, or only through a known exposure mapping. This remains true if the structural mechanism depends on outcomes of peers only at a short network distance, or through a known exposure mapping. In this paper, we first define causal estimands that are identified and estimable from a single experiment on the network under minimal assumptions on the structure of interference, and which represent average partial causal responses which generally vary with other global features of the realized assignment. Under a fixed-population, design-based approach, we show unbiasedness, consistency and asymptotic normality for inverse-probability weighting (IPW) estimators for those causal parameters from a randomized experiment on a single network. We also analyze more closely the case of marginal interventions in a model of equilibrium with smooth response functions where we can recover LATE-type weighted averages of derivatives of those response functions. Under additional structural assumptions, these "agnostic" causal estimands can be combined to recover model parameters, but also retain their less restrictive causal interpretation. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.19394 |
| By: | Luis-Felipe Lopez-Calva; Kimberly Blair Bolch; Stojkoski, Viktor; Fernandez, Almudena |
| Abstract: | While development literature has come a long way in conceptualizing and measuring poverty multidimensionally, policy interventions to address it remain trapped in fragmented, sector-specific approaches. One of the main challenges in implementing integrated policy responses to multidimensional poverty reduction is understanding how the different dimensions are interlinked and how they jointly evolve over time. For example, this could require disentangling how a person’s health, education, and standards of living all interact in a dynamic sense. Motivated by economic complexity methods and applications, this paper uses network science to propose two new measures to understand the interconnected structure of multidimensional poverty: the Poverty Space (a network that visualizes the interactions among different indicators of poverty) and Poverty Centrality (a measure of the relative importance of each indicator within this network). Applying these measures to 67 developing countries using data from the Oxford Poverty and Human Development Initiative–United Nations Development Programme Global Multidimensional Poverty Index, the paper finds that the structure of multidimensional poverty networks is similar across countries and stable over time. The findings also show that indicators that are more central in the Poverty Space witness a more significant reduction in the censored headcount ratio over time, compared to peripheral indicators. These results are used to demonstrate how the Poverty Space can be applied in policy: using the forward-looking Policy Priority Inference framework to help guide policy choices. Overall, the paper points to the relevance of using network science methods to help to identify key “nodes” in the structure of multidimensional poverty where applied pressure (targeted interventions) could lead to a greater effect on the system as a whole. |
| Date: | 2024–08–26 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10882 |
| By: | Preben Forer; Barak Budnick; Pierpaolo Vivo; Sabrina Aufiero; Silvia Bartolucci; Fabio Caccioli |
| Abstract: | We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical model driven by portfolio rebalancing. While heterogeneity generally correlates with heightened volatility, increasing diversification may have a stabilizing or destabilizing effect depending on the connectivity level of the network. The stability/instability transition is dictated by the largest eigenvalue of the random matrix governing the time evolution of the endogenous components of the returns, for which different approximation schemes are proposed and tested against numerical diagonalization. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.19260 |
| By: | Sebastian Martin Krantz |
| Abstract: | This paper characterizes economically optimal investments in Africa’s road network in partial and general equilibrium —based on a detailed topography of the network, road con-struction costs, frictions in cross-border trading, and economic geography. Drawing from data on 144 million trans-continental routes, it first assesses local and global network efficiency and market access. It then derives a large network connecting 447 cities and 52 ports along the fastest routes, devises an algorithm to propose new links, analyzes the quality of existing links, and estimates link-level construction/upgrading costs. Subsequently, it computes market-access-maximizing investments in partial equilibrium and conducts cost-benefit analysis for individual links and several investment packages. Using a spatial economic model and global optimization over the space of networks, it finally elicits welfare-maximizing investments in spatial equilibrium. Findings imply that cross-border frictions and trade elasticities signifi-cantly shape optimal road investments. Reducing frictions yields the greatest benefits, followed by road upgrades and new construction. Sequencing matters, as reduced frictions generally increase investment returns. Returns to upgrading key links are large, even under frictions. |
| Date: | 2024–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10893 |
| By: | Berliant, Marcus |
| Abstract: | We examine the fine microstructure of commuting in a game-theoretic setting with a continuum of commuters. Commuters' home and work locations can be heterogeneous. A commuter transport network is exogenous. Traffic speed is determined by local congestion at a time and place along a link, where local congestion at a time and place is endogenous. The model can be reinterpreted to apply to congestion on the internet. We find sufficient conditions for existence of equilibrium, that multiple equilibria are ubiquitous, and that the welfare properties of morning and evening commute equilibria differ on a generalization of a directed tree. |
| Keywords: | Commuting; Internet traffic; Congestion externality; Efficient Nash equilibrium; Price of anarchy |
| JEL: | L86 R41 |
| Date: | 2025–02–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123553 |
| By: | Antonin Bergeaud (CEPR - Center for Economic Policy Research, Centre de recherche de la Banque de France - Banque de France); Arthur Guillouzouic (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, IPP - Institut des politiques publiques, Sciences Po - Sciences Po) |
| Abstract: | Following Bergeaud et al. (2022), we construct a new measure of proximity between industrial sectors and public research laboratories. Using this measure, we explore the underlying network of knowledge linkages between scientific fields and industrial sectors in France. We show empirically that there exists a significant negative correlation between the geographical distance between firms and laboratories and their scientific proximity, suggesting strongly localized spillovers. Moreover, we uncover some important differences by field, stronger than when using standard patent-based measures of proximity. |
| Keywords: | Knowledge Spillovers, Technological Distance, Public Laboratories |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:hal:pseptp:hal-04938250 |
| By: | Khandelwal, Vatsal; Chacha, Peter W.; Verena Christina Wiedemann; Kirui, Benard K. |
| Abstract: | The spatial configuration of domestic supply chains plays a crucial role in the transmission of shocks. This paper investigates the representativeness of formal firm-to-firm trade data in capturing overall domestic trade patterns in Kenya — a context with a high prevalence of informal economic activity. It first documents a series of stylized facts and shows that informal economic activity is not randomly distributed across space and sectors, with a higher incidence of informality in downstream sectors and smaller regional markets. The paper then links granular transaction-level data on formal firms with data on informal economic activity to estimate a structural model and predict a counterfactual network that accounts for informal firms. The findings show that formal sector data overstates the spatial concentration of aggregate trade flows and under accounts for trade within regions and across regions with stronger social ties. Additionally, the higher the informality in a sector and region is, the more formal sector data underestimates its vulnerability to domestic output shocks and overestimate its vulnerability to import shocks. |
| Date: | 2024–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10932 |
| By: | Mar Delgado-Téllez (EUROPEAN CENTRAL BANK); Javier Quintana (BANCO DE ESPAÑA); Daniel Santabárbara (BANCO DE ESPAÑA) |
| Abstract: | An increase of €100 per tonne in the EU carbon price reduces the carbon footprint but lowers GDP due to higher energy costs and carbon leakage. Using a dynamic multi-sector, multi-country model augmented with an energy block that includes endogenous renewable energy investment, we analyze the macroeconomic and emissions effects of a carbon price. Investment in renewable energy mitigates electricity price increases in the medium term, leading to a smaller GDP loss (up to -0.4%) and a larger emissions reduction (24%) in the EU. Neglecting renewable energy investment overestimates the negative economic impact. We also find that a Carbon Border Adjustment Mechanism (CBAM) reduces carbon leakage but slightly hurts GDP and inflation as the competitive gain is offset by the higher costs of imported intermediate inputs. |
| Keywords: | carbon pricing, renewable energy investment, carbon border adjustment, production networks |
| JEL: | C6 H2 Q5 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2506 |
| By: | Kim, Francis D.; Raj, Prateek |
| Abstract: | Economic inequality remains a persistent and widely studied issue in the social sciences. South Korea provides a striking example where the top 23 business groups, controlled by ultra-wealthy, family-owned conglomerates (chaebols), have maintained significant economic persistence and resisted outsider entry, even amidst the disruptive forces of the 21st-century digital age. This study sheds light on how chaebol families have strategically evolved their use of marriage alliances as a key channel to political networks, significantly shaping the dynamics of elite influence over time. In the pre-democratic era, chaebols often formed marriages with politicians to strengthen their influence and boost corporate value. For example, the 2024 divorce between SK Group's Chey Tae-won and Roh So-young, daughter of former President Roh Tae-woo, highlights how such alliances helped secure key advantages, like SK's telecom permit in the 1980s (BBC News, 2024.5). However, marriages with other elites or commoners didn't provide the same benefits. Contrary to the perspective presented by The Economist (2015.4) that such practices among Korean chaebols are enduring, this study finds that blood-based alliances between politicians and elite businessmen was a temporal, institution-specific strategy that have largely disappeared in the democratic era. As South Korea transitioned to a more liberalized regime, the frequency of these political marriages has drastically declined, as confirmed by our analysis. Instead, chaebol families have adapted by leveraging elite marriages within their own business circles to sustain family control over top business groups. These practices have ensured their continued economic dominance while limiting outsider entry into their exclusive networks. This study documents the evolution of marriage alliances as a critical mechanism through which chaebols have navigated changing institutional landscapes, maintaining their entrenched economic power despite shifting political and social conditions. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:311857 |
| By: | Alvero, AJ; antonio, anthony lising; Luqueño, Leslie; Pearman, Francis |
| Abstract: | Computational text analysis has grown in popularity among social scientists due to the massive influx of digitized data. However, connecting text to authorship could be a boon for digital demography and expand the scope of computational text analysis from trends of what is being written toward social patterning of the people producing it. We explore this potential through examinations of a large corpus of college admissions essays (n = 254, 820 essays submitted by 83, 538 applicants) and show how personal identity markers and ZIP code-level social context data influence large scale processes of textual production. After generating numerical representations of the essays using computational methods, we model the relationships between different identity and spatial characteristics of applicants and their local communities. We find strong relationships between identity and spatial features with the essays. We also find that individuals whose personal identities are spatially unique--that is, demographically different from others in their immediate content--were most likely to be misclassified, indicating that writing is influenced both socially and spatially. This work clarifies how authorship characteristics shape large scale textual production processes, like college admissions, and complements other large scale analyses of text by focusing on authorship rather than purely textual patterns. |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:pt6b2_v2 |
| By: | Altunay, Paul-Christoph; Vetter, Oliver A. |
| Abstract: | The rapid advancement of artificial intelligence (AI) has ushered in a surge of AI startups. AI startups have been hypothesized to be organized in and benefit from ecosystems, with concrete research to substantiate this claim remaining scarce. We aim to bridge this gap by providing a first step towards a scientific understanding of AI startup ecosystems, focusing on investor-related ecosystem effects. We employ a network theory approach to examine the relationship between investor-related ecosystems and AI startup success. We provide an overview of how investor-related ecosystems influence the success of AI startups and how investor types affect their success differently. Findings suggest that AI startups disproportionately benefit from investor-related ecosystem effects and that they differ by investor type, suggesting a new pecking order for choosing investors. In light of these results, practitioners and scholars are prompted to reassess established norms of entrepreneurial finance and startup success factors concerning AI startups. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:152916 |
| By: | Oliver Biggar; Iman Shames |
| Abstract: | The preference graph is a combinatorial representation of the structure of a normal-form game. Its nodes are the strategy profiles, with an arc between profiles if they differ in the strategy of a single player, where the orientation indicates the preferred choice for that player. We show that the preference graph is a surprisingly fundamental tool for studying normal-form games, which arises from natural axioms and which underlies many key game-theoretic concepts, including dominated strategies and strict Nash equilibria, as well as classes of games like potential games, supermodular games and weakly acyclic games. The preference graph is especially related to game dynamics, playing a significant role in the behaviour of fictitious play and the replicator dynamic. Overall, we aim to equip game theorists with the tools and understanding to apply the preference graph to new problems in game theory. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.03546 |