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on Network Economics |
| By: | Matteo Bizzarri (University of Naples Federico II and CSEF.); Fernando Vega-Redondo (Bocconi University and BIDSA.) |
| Abstract: | We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network. In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common shareholders. While in a horizontal economy the common-ownership effects on equilibrium prices depend on firm markups alone, in the more general case displaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative question of what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention is proportional to the Bonacich centrality of each firm in the weighted network quantifying interfirm price-mediated externalities. Finally, we also explain that the parameters of the model can be identified from typically available data, hence rendering our model amenable to empirical analysis. |
| Keywords: | production networks, network games, common ownership, oligopoly. |
| JEL: | D43 D57 D85 L13 L16 |
| Date: | 2024–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:707&r=net |
| By: | Toygar T. Kerman; Anastas P. Tenev |
| Abstract: | We study a multiple-receiver Bayesian persuasion model in which the sender wants to achieve an outcome and commits to an experiment which sends correlated messages to homogeneous receivers. Receivers are connected in a network and can perfectly observe their immediate neighbors’ messages. After updating their beliefs, receivers choose an action to match the true state of the world. Surprisingly, the sender’s gain from persuasion does not change monotonically with network density. We characterize a class of networks in which increased communication among the receivers is strictly better for the sender and hence strictly worse for the receivers. |
| Keywords: | Bayesian Persuasion, Networks, Critical Mass, Voting |
| JEL: | C72 D72 D82 D85 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp772&r=net |
| By: | Thiago C. Silva; Paulo V. B. Wilhelm; Diego R. Amancio |
| Abstract: | This study examines the effects of de-globalization trends on international trade networks and their role in improving forecasts for economic growth. Using section-level trade data from nearly 200 countries from 2010 to 2022, we identify significant shifts in the network topology driven by rising trade policy uncertainty. Our analysis highlights key global players through centrality rankings, with the United States, China, and Germany maintaining consistent dominance. Using a horse race of supervised regressors, we find that network topology descriptors evaluated from section-specific trade networks substantially enhance the quality of a country's GDP growth forecast. We also find that non-linear models, such as Random Forest, XGBoost, and LightGBM, outperform traditional linear models used in the economics literature. Using SHAP values to interpret these non-linear model's predictions, we find that about half of most important features originate from the network descriptors, underscoring their vital role in refining forecasts. Moreover, this study emphasizes the significance of recent economic performance, population growth, and the primary sector's influence in shaping economic growth predictions, offering novel insights into the intricacies of economic growth forecasting. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.08712&r=net |
| By: | Pawanesh Yadav; Charu Sharma; Niteesh Sahni |
| Abstract: | This paper presents an analysis of the Indian stock market using a method based on embedding the network in a hyperbolic space using Machine learning techniques. We claim novelty on four counts. First, it is demonstrated that the hyperbolic clusters resemble the topological network communities more closely than the Euclidean clusters. Second, we are able to clearly distinguish between periods of market stability and volatility through a statistical analysis of hyperbolic distance and hyperbolic shortest path distance corresponding to the embedded network. Third, we demonstrate that using the modularity of the embedded network significant market changes can be spotted early. Lastly, the coalescent embedding is able to segregate the certain market sectors thereby underscoring its natural clustering ability. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04710&r=net |
| By: | Jihwan Do; Lining Han; Xiaoxi Li |
| Abstract: | This paper studies a stylized model of a monopoly data seller when information-sharing network exists among data buyers. We show that, if the buyers' prior information is sufficiently noisy, the optimal selling strategy is characterized by a maximum independent set, which is the largest set of buyers who do not have information-sharing link at all. In addition, the precision of the seller's data decreases in the number of information-sharing links among buyers, but it is higher than the socially efficient level of precision. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.05546&r=net |
| By: | Matteo Bizzarri (University of Naples Federico II and CSEF.) |
| Abstract: | I show three properties in which a dynamic input-output economy with time to build differs from a static economy: first, a standard result in a Cobb-Douglas production networks is that productivity shocks diffuse downstream while demand shocks diffuse upstream. This fact interacts with the discount rate to generate a potentially quite different aggregate impact in different sectors. With time to build the direction of the diffusion is the opposite, and demand shocks also diffuse downstream. Second, I show that time to build leads to less comovement across sectors. Third, I provide bounds on the recovery time of the economy hit by a shock. |
| Keywords: | production networks, diffusion, propagation, shocks. |
| JEL: | D57 D85 E32 |
| Date: | 2024–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:709&r=net |
| By: | Shaomin Wu |
| Abstract: | In this paper, I characterize the network formation process as a static game of incomplete information, where the latent payoff of forming a link between two individuals depends on the structure of the network, as well as private information on agents' attributes. I allow agents' private unobserved attributes to be correlated with observed attributes through individual fixed effects. Using data from a single large network, I propose a two-step estimator for the model primitives. In the first step, I estimate agents' equilibrium beliefs of other people's choice probabilities. In the second step, I plug in the first-step estimator to the conditional choice probability expression and estimate the model parameters and the unobserved individual fixed effects together using Joint MLE. Assuming that the observed attributes are discrete, I showed that the first step estimator is uniformly consistent with rate $N^{-1/4}$, where $N$ is the total number of linking proposals. I also show that the second-step estimator converges asymptotically to a normal distribution at the same rate. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.12581&r=net |
| By: | Alonso Alfaro-Urena; Paolo Zacchia |
| Abstract: | This paper develops a framework for the empirical analysis of the determinants of input supplier choice on the extensive margin using firm-to-firm transaction data. Building on a theoretical model of production network formation, we characterize the assumptions that enable a transformation of the multinomial logit likelihood function from which the seller fixed effects, which encode the seller marginal costs, vanish. This transformation conditions, for each subnetwork restricted to one supplier industry, on the out-degree of sellers (a sufficient statistic for the seller fixed effect) and the in-degree of buyers (which is pinned down by technology and by “make-or-buy” decisions). This approach delivers a consistent estimator for the effect of dyadic explanatory variables, which in our model are interpreted as matching frictions, on the supplier choice probability. The estimator is easy to implement and in Monte Carlo simulations it outperforms alternatives based on group fixed effects. In an empirical application about the effect of a major Costa Rican infrastructural project on firm-to-firm connections, our approach yields estimates typically much smaller in magnitude than those from naive multinomial logit. |
| Keywords: | Production network, Supplier choice, Conditional logit, Infrastructures |
| JEL: | C25 L11 R12 R15 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp775&r=net |
| By: | Leslie Sheng Shen; Tony Zhang |
| Abstract: | We develop a structural model of the global banking network and analyze its role in facilitating risk sharing and amplifying shocks across countries and over time. Using bilateral international lending data, we uncover significant heterogeneity in the willingness and capacity of banks to provide cross‐border interbank and corporate loans. This heterogeneity explains variation in risk sharing and amplification across countries. Moreover, we show that cross‐border loan supply has become less elastic overtime, resulting in a decline in risk sharing. While shock amplification has also declined on average, some countries may experience greater amplification in response to foreign funding shocks. |
| Keywords: | global economy; risk sharing; shock propagation; capital flows |
| JEL: | F34 G21 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:98178&r=net |
| By: | Maria De Paola (University of Calabria, INPS Direzione Centrale Studi e Ricerche, Institute for the Study of Labor (IZA)); Roberto Nisticò (Università di Napoli Federico II, CSEF and IZA); Vincenzo Scoppa (University of Calabria, Institute for the Study of Labor (IZA)) |
| Abstract: | This paper studies the effects on individuals’ fertility of the fertility behavior of their co-workers. Using matched employer-employee data from the Italian Social Security Institute (INPS) for the years 2016-2020, we estimate how the fertility rate among co-workers of the same age group and in the same occupation affects a worker’s likelihood of having a child. We exploit the variation in workplace peer fertility induced by the Jobs Act reform, which weakened employment protection – and therefore reduced the fertility rate – for the employees affected, i.e. those in larger firms hired on open-ended contracts after 7 March 2015. Our analysis focuses on similar workers hired before the Jobs Act and uses the fraction of co-workers hired after 7 March 2015 as an instrumental variable for average peer fertility. We find that a 1-percentage-point reduction in the average peer fertility at year t-1 leads to a reduction in the individual probability of having a child at year t by 0.3 to 0.4 percentage points, or a 10% reduction in average fertility. Heterogeneity analysis suggests that while workplace peer effects may operate primarily through social influence and social norms, information sharing and career concerns tend to attenuate individuals’ responses to the fertility of their co-workers, especially among women. Our findings also help to understand the potential spillovers that employment protection reforms may have on fertility rates through social interactions. |
| Keywords: | Fertility; Peer Effects; Instrumental Variables; Employment Protection Legislation. |
| JEL: | C3 J13 J65 J41 M51 |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:714&r=net |
| By: | Xian Gong; Paul X. McCarthy; Marian-Andrei Rizoiu; Paolo Boldi |
| Abstract: | In this paper we use for the first time a systematic approach in the study of harmonic centrality at a Web domain level, and gather a number of significant new findings about the Australian web. In particular, we explore the relationship between economic diversity at the firm level and the structure of the Web within the Australian domain space, using harmonic centrality as the main structural feature. The distribution of harmonic centrality values is analyzed over time, and we find that the distributions exhibit a consistent pattern across the different years. The observed distribution is well captured by a partition of the domain space into six clusters; the temporal movement of domain names across these six positions yields insights into the Australian Domain Space and exhibits correlations with other non-structural characteristics. From a more global perspective, we find a significant correlation between the median harmonic centrality of all domains in each OECD country and one measure of global trust, the WJP Rule of Law Index. Further investigation demonstrates that 35 countries in OECD share similar harmonic centrality distributions. The observed homogeneity in distribution presents a compelling avenue for exploration, potentially unveiling critical corporate, regional, or national insights. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.10006&r=net |