Welfare maximization with friends-of-friends network externalities

Online social networks allow the collection of large amounts of data about the influence between users connected by a friendship-like relationship. When distributing items among agents forming a social network, this information allows us to exploit network externalities that each agent receives from his neighbors that get the same item. In this paper we consider Friends-of-Friends (2-hop) network externalities, i.e., externalities that not only depend on the neighbors that get the same item but also on neighbors of neighbors. For these externalities we study a setting where multiple different items are assigned to unit-demand agents. Specifically, we study the problem of welfare maximization under different types of externality functions. Let n be the number of agents and m be the number of items. Our contributions are the following: (1) We show that welfare maximization is APX-hard; we show that even for step functions with 2-hop (and also with 1-hop) externalities it is NP-hard to approximate social welfare better than (1-1/e). (2) On the positive side we present (i) an O(sqrt n)-approximation algorithm for general concave externality functions, (ii) an O(\log m)-approximation algorithm for linear externality functions, and (iii) an (1-1/e)\frac{1}{6}-approximation algorithm for 2-hop step function externalities. We also improve the result from [6] for 1-hop step function externalities by giving a (1-1/e)/2-approximation algorithm

Social Welfare and Wage Inequality in Search Equilibrium with Personal Contacts

This paper incorporates job search through personal contacts into an equilibrium matching model with a segregated labour market. Job search in the public submarket is competitive which is in contrast with the bargaining nature of wages in the informal job market. Moreover, the social capital of unemployed workers is endogenous depending on the employment status of their contacts. This paper shows that the traditional Hosios (1990) condition continues to hold in an economy with family contacts but it fails to provide efficiency in an economy with weak ties. This inefficiency is explained by a network externality: weak ties yield higher wages in the informal submarket than family contacts. Furthermore, the spillovers between the two submarkets imply that wage premiums associated with personal contacts lead to higher wages paid to unemployed workers with low social capital but the probability to find a job for those workers is below the optimal level.Personal contacts, family job search, social capital, wages, equilibrium efficiency

A Social Network Analysis of Occupational Segregation

We develop a social network model of occupational segregation between different social groups, generated by the existence of positive inbreeding bias among individuals from the same group. If network referrals are important for job search, then expected homophily in the contact network structure induces different career choices for individuals from different social groups. This further translates into stable occupational segregation equilibria in the labor market. We derive the conditions for wage and unemployment inequality in the segregation equilibria and characterize first and second best social welfare optima. Surprisingly, we find that socially optimal policies involve segregation.Social Networks, Homophily, Inbreeding Bias, Occupational Segregation, Labor Market Inequality, Social Welfare

Why is on-net traffic cheaper than off-net traffic? Access markup as a collusive device and a barrier to entry

Received literature have shown that if competing networks are restricted to linear and uniform pricing, high access charges can facilitate collusion; a result that breaks down if we allow for non-linear and discriminatory pricing, however. In this paper we add unbalanced calling pattern to the model and show that this may restore the use of high access charges. High access charges may make the firms collude on high prices. Moreover, when allowing for entry, we show that incumbents can profitably charge high access prices as a device to deter or soften entrants.Two-way access; non-linear pricing; competition; entry.

Maximizing Welfare in Social Networks under a Utility Driven Influence Diffusion Model

Motivated by applications such as viral marketing, the problem of influence maximization (IM) has been extensively studied in the literature. The goal is to select a small number of users to adopt an item such that it results in a large cascade of adoptions by others. Existing works have three key limitations. (1) They do not account for economic considerations of a user in buying/adopting items. (2) Most studies on multiple items focus on competition, with complementary items receiving limited attention. (3) For the network owner, maximizing social welfare is important to ensure customer loyalty, which is not addressed in prior work in the IM literature. In this paper, we address all three limitations and propose a novel model called UIC that combines utility-driven item adoption with influence propagation over networks. Focusing on the mutually complementary setting, we formulate the problem of social welfare maximization in this novel setting. We show that while the objective function is neither submodular nor supermodular, surprisingly a simple greedy allocation algorithm achieves a factor of $(1-1/e-\epsilon)$ of the optimum expected social welfare. We develop \textsf{bundleGRD}, a scalable version of this approximation algorithm, and demonstrate, with comprehensive experiments on real and synthetic datasets, that it significantly outperforms all baselines.Comment: 33 page

Voluntary Agreements under Endogenous Legislative Threats

The paper analyzes the welfare properties of voluntary agreements (VA) with polluters, when they are obtained under the legislative threat of an alternative stricter policy option. In the model, the threat is an abatement quota. Both the threat and its probability of implementation are endogenous. The latter is the outcome of a rent-seeking contest between a green and a polluter lobby group influencing the legislature. We show that a welfare-improving VA systematically emerges in equilibrium and that it is more efficient than the pollution quota. We also discuss various VA design aspects.Environmental policy, voluntary agreements, bargaining, legislatures, rent seeking, rent-seeking contests

Rural to Urban Migration and Network Effects in an Extended Family Framework

Literature on migration and network effects suggests that the rate of migration is positively related to the extent or degree of personal and community level networks potential migrants have at the destination. However in this particular paper it is shown that when the decision making unit is the extended family and there is a minimum wage induced Harris-Todaro type job rationing in the urban sector having greater numbers of previous migrants at the urban end does not necessarily lead to more migration from the hinterland. This counter intuitive result is generated as a consequence of juxtaposing an extended family framework with urban equilibrium unemployment in the model. A larger stock of previous migrants at the urban end has a positive effect on new migration which comes specifically through a greater flow of remittance income from the migrants to their rural counterparts - the two households comprising the extended family. The increased remittance income provides a positive stimulus to migration as it relaxes the migration cost constraints facing the extended family. On the other hand limited jobs in the urban sector and the resultant job rationing implies that a greater number of previous migrants also crowds out job opportunities for the new ones thus simultaneously reducing incentives to migrate. The direction of the net effect however depends on the economic characteristics of the extended family and the initial employment conditions in the urban sector.Harris-Todaro, Migration, extended family framework

Microeconomics of Technology Adoption

There is an emerging consensus among macro-economists that differences in technology across countries accounts for the major differences in per-capita GDP and the wages of workers with similar skills across countries. Accounting for differences in technology levels across countries thus can go a long way towards understanding global inequality. One mechanism by which poorer countries can catch up with richer countries is through technological diffusion, the adoption by low-income countries of the advanced technologies produced in high-income countries. In this survey, we examine recent micro studies that focus on understanding the adoption process. If technological diffusion is a major channel by which poor countries can develop, it must be the case that technology adoption is incomplete or the inputs associated with the technologies are under-utilized in poor, or slow-growing economies. Thus, obtaining a better understanding of the constraints on adoption are useful in understanding a major component of growth.technology adoption, review