Incomplete information and the idiosyncratic foundations of aggregate volatility

This thesis considers two interrelated themes: the emergence of aggregate volatility from idiosyncratic shocks and optimisation under incomplete information when, for reasons of strategic complementarity, agents are interested in both simple and weighted averages of their competitors' actions. I first develop a model of Bayesian social learning over a network. Unlike earlier literature that abandons one of the assumptions that agents (a) act repeatedly; (b) are rational; and (c) face strategic complementarities, I obtain tractability for arbitrarily large networks by also assuming that agents do not know the full structure of the network, but do know its link distribution. An AR(1) process for the underlying state induces an ARMA(1,1) process for the hierarchy of expectations, with current and lagged weighted averages of agents' idiosyncratic shocks entering at an aggregate level. For sufficiently irregular networks, these shocks do not wash out, thus causing persistent aggregate effects. I next apply this to firms' price-setting problem, demonstrating that even when firms possess complete price exibility, network learning induces considerable persistence in aggregate variables following monetary and real shocks and that network shocks plausibly represent a source of aggregate economic volatility. Finally, I explore price setting under monopolistic competition when facing TransLog preferences. I solve explicitly for a firm's best-response pricing rule under full information and show that in partial equilibrium under incomplete information, larer firms will focus on their marginal costs while smaller firms will place more weight on changes in consumer preferences and competitors' prices. In general equilibrium, I estimate the effect of two distinct sources of real rigidity that emerge from TransLog preferences: the well-known curvature in demand and the dramatic increase in complexity of firms' signal-extraction problems. With non-uniform preferences, the model represents another channel through which idiosyncratic shocks can cause aggregate volatility

Learning and coordinating in a multilayer network

We introduce a two layer network model for social coordination incorporating two relevant ingredients: a) different networks of interaction to learn and to obtain a payoff , and b) decision making processes based both on social and strategic motivations. Two populations of agents are distributed in two layers with intralayer learning processes and playing interlayer a coordination game. We find that the skepticism about the wisdom of crowd and the local connectivity are the driving forces to accomplish full coordination of the two populations, while polarized coordinated layers are only possible for all-to-all interactions. Local interactions also allow for full coordination in the socially efficient Pareto-dominant strategy in spite of being the riskier one

Network models of innovation and knowledge diffusion

Much of modern micro-economics is built from the starting point of the perfectly competitive market. In this model there are an infinite number of agents — buyers and sellers, none of whom has the power to influence the price by his actions. The good is well-defined, indeed it is perfectly standardized. And any interactions agents have is mediated by the market. That is, all transactions are anonymous, in the sense that the identities of buyer and seller are unimportant. Effectively, the seller sells “to the market” and the buyer buys “from the market”. This follows from the standardization of the good, and the fact that the market imposes a very strong discipline on prices. Implicit here is one (or both) of two assumptions. Either all agents are identical in every relevant respect, apart, possibly, from the prices they ask or offer; or every agent knows every relevant detail about every other agent. If the former, then obviously my only concern as a buyer is the prices asked by the population of sellers since in every other way they are identical. If the latter, then each seller has a unique good, and again what I am concerned with is the price of it. In either case, we see that prices capture all relevant information and are enough for every agent to make all the decisions he needs to make....economics of technology ;

Risk assessment and relationship management: practical approach to supply chain risk management

The literature suggests the need for incorporating the risk construct into the measurement of organisational performance, although few examples are available as to how this might be undertaken in relation to supply chains. A conceptual framework for the development of performance and risk management within the supply chain is evolved from the literature and empirical evidence. The twin levels of dyadic performance/risk management and the management of a portfolio of performance/risks is addressed, employing Agency Theory to guide the analysis. The empirical evidence relates to the downstream management of dealerships by a large multinational organisation. Propositions are derived from the analysis relating to the issues and mechanisms that may be employed to effectively manage a portfolio of supply chain performance and risks

Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior

We develop a model in which delinquents compete with each other in criminal activities but may benefit from being friends with other criminals by learning and acquiring proper know-how on the crime business. By taking the social network connecting agents as given, we study the subgame perfect Nash equilibrium of this game in which individuals decide first to work or to become a criminal and then the crime effort provided if criminals. We show that this game always has a pure strategy subgame perfect Nash equilibrium that we characterize. Ex ante identical individuals connected through a network can end up with very different equilibrium outcomes: either employed, or isolated criminal or criminals in network. We also show that multiple equilibria with different number of active criminals and levels of involvement in rime activities may coexist and are only driven by the geometry of the pattern of links connecting criminals. Using the equilibrium concept of pairwise-stable networks, we then show that the multiplicity of equilibrium outcomes holds even when we allow for endogenous network formation.Strategic Interactions; Multiple Equilibria; Pairwise-Stable Networks

Influential Listeners: An Experiment on Persuasion Bias in Social Networks

This paper presents an experimental investigation of persuasion bias, a form of bounded rationality whereby agents communicating through a social network are unable to account for possible repetitions in the information they receive. The results indicate that network structure plays a significant role in determining social influence. However, the most influential agents are not those with more outgoing links, as predicted by the persuasion bias hypothesis, but those with more incoming links. We show that a boundedly rational updating rule that takes into account not only agents' outdegree, but also their indegree, provides a better explanation of the experimental data. In this framework, consensus beliefs tend to be swayed towards the opinions of influential listeners. We then present an effort-weighted updating model as a more general characterization of information aggregation in social networks.

Networks Within Cities and Among Cities: A Paradigm for Urban Development and Governance

Networks and networking have become fashionable concepts and terms in regional science, and in particular in regional and urban geography in the last decade: we speak about network firms, network society, network economy but also network cities, city-networks, reti urbane, reseaux de villes. Only catch-words for somebody; a true new scientific paradigm according to others. Our opinion is that in fact we are confronted with a new paradigm in spatial sciences, under some precise conditions: - that its exact meaning is thoroughly defined, - that its theoretical economic rationale is justified, - that the novelty of its empirical content is clearly pointed out, with respect to more traditional spatial facts and processes that can easily be interpreted through existing spatial paradigms. The relevant theoretical building block on which the network concept or paradigm may be constructed are: - a new view of the economy as a system or web of links between individuals, firms and institutions, where links depend on experience and evolve through learning processes; the existing endowment of knowledge and other production factors is put into value through a relational capability addressed towards the exchange and collection of information, building reputation and trust, creating synergies, cutting down uncertainty, boosting learning processes; - the acknowledgement of cooperation as a new organisational and behavioural form, intermediate between hierarchy (internal development and merging of external activities through direct control) and market resort; cooperation networks among firms collaborating with each other on technological advances and innovation projects were the earlier phenomena that were abundantly explored in the past. In a spatial perspective, two phenomena in particular are worth exploring today through the network concept: - networking as cooperation among individuals, firms and institutions taking place inside the cities concerning collective action, public/private partnerships on large urban projects and the supply of public goods, and giving rise to new forms of urban governance; - networking as inter-urban cooperation, assuming the cities as economic actors, competing but also cooperating in the global arena where locations of internationally mobile factors (professionals, corporations, institutions) are decided and negotiated. The paper is organised in the following way: - a major section is devoted to the interpretation of the micro-economic efficiency of local networking (local urban networks), in terms of the usual criteria of optimal allocation of resources and collective welfare, viewing the network as an organisational alternative between market failure and state failure; - a transition section deals with the interpretation of cities, a collective actor at best, as individual/unitary economic actors, given the case for collective action among interest groups, the possibility of defining in broad terms a function of collective preference referring to non-mobile local actors, the engagement of public and private actors in processes of strategic planning and definition of shared visions for the future of the city vis-a-vis mobile actors; - another main section interprets competition and cooperation among cities (inter-city-networks) underlining advantages, risks and conditions for maximising overall comprehensive well-being. JEL classification: D70, H77, R58