A Noncooperative Model of Contest Network Formation

In this paper we study a situation in which agents embedded in a network simultaneously play interrelated bilateral contest games with their neighbors. Spillovers between contests induce complex local and global network effects. We first characterize the equilibrium of the game on a given network. Then we study a network formation model, introducing a novel but intuitive link formation protocol. As links represent negative relationships, link formation is unilateral while link destruction is bilateral. The unique stable network topology is a complete K-partite network with partitions of different sizes. Stable networks exhibit properties that are in line with empirical and theoretical findings from other disciplines

A Noncooperative Model of Contest Network Formation

In this paper we study a model of weighted network formation. The bilateral interaction is modeled as a Tullock contest game with the possibility of a draw. We describe stable networks under different concepts of stability. We show that a Nash stable network is either the empty network or the complete network. The complete network is not immune to bilateral deviations. When we allow for limited farsightedness, stable networks immune to bilateral deviations must be complete $M$-partite networks, with partitions of different sizes. The empty network is the efficient network. We provide several comparative statics results illustrating the importance of network structure in mediating the effects of shocks and interventions. In particular, we show that an increase in the likelihood of a draw has a non-monotonic effect on the level of wasteful contest spending in the society. To the best of our knowledge, this paper is the first attempt to model weighted network formation when the actions of individuals are neither strategic complements nor strategic substitutes

Production Networks

In this paper, we model the economy as a production network of competitive firms that interact in a general-equilibrium setup. First, we find that, at the unique Walrasian equilibrium, the profit of each active firm is proportional to (a suitable generalization of) its Bonacich centrality. We also determine consumer welfare at equilibrium and characterize efficient networks. Then we proceed to conduct a broad range of comparative-static analyses. These include the effect on profits and welfare of:(a) distortions (e.g. tax/subsidies) imposed on the whole economy or specific firms; (b) structural changes such as the addition of links and the elimination of nodes;(c) productivity and preference changes.We discover that the induced effects are in general nonmonotone, depend on global network features, and impinge on each sector depending on the pattern of incentralities displayed by its input providers and output users. Furthermore, the inter-sector “linkages” underlying these effects can usually be decomposed – following the heuristic dichotomy proposed by Hirschman (1958) – into a forward (push) component and a backward (pull) one. Finally, we undertake some preliminary analysis of firm dynamics and illustrate that, when evaluating policies of support and shock mitigation from a dynamic viewpoint, the reliance on strict market-based criteria can be quite misleading in terms of social welfare

Measuring the Input Rank in Global Supply Networks

We introduce the Input Rank as a measure of relevance of direct and indirect suppliers in Global Value Chains. We conceive an intermediate input to be more relevant for a downstream buyer if a decrease in that input’s productivity affects that buyer more. In particular, in our framework, the relevance of any input depends on: i) the network position of the supplier relative to the buyer, ii) the patterns of intermediate inputs vs. labor intensities connecting the buyer and the supplier, iii) and the competitive pressures along supply chains. After we compute the Input Rank from both U.S. and world Input-Output tables, we provide useful insights on the crucial role of services inputs as well as on the relatively higher relevance of domestic suppliers and suppliers coming from regionally integrated partners. Finally, we test that the Input Rank is a good predictor of vertical integration choices made by 20,489 U.S. parent companies controlling 154,836 subsidiaries worldwide

Rent Seeking and Power Hierarchies: A Noncooperative Model of Network Formation with Antagonistic Links

Network structure has a significant role in determining the outcomes of many socioeconomic relationships, including the antagonistic ones. In this paper we study a situation in which agents, embedded in a network, simultaneously play interrelated bilateral contest games with their neighbors. Interrelatedness of contests induces complex local and global network effects. We first characterize the equilibrium of a game on an arbitrary fixed network. Then we study a dynamic network formation model, introducing a novel but intuitive link formation protocol. As links represent antagonistic relationships, link formation is unilateral while link destruction is bilateral. A complete k-partite network is the unique stable network topology. As a result, the model provides a micro-foundation for the structural balance concept in social psychology, and the main results go in line with theoretical and empirical findings from other disciplines, including international relations, sociology and biology

Essays in networks and applied microeconomic theory

Defence date: 27 October 2014Examining Board: Professor Fernando Vega-Redondo, Supervisor, Università Bocconi; Professor Stefano Battiston, University of Zurich; Professor Matthias Dahm, University of Nottingham; Professor Piero Gottardi, EUIThis thesis contains three papers which examine the role of networks and social structure in different modes of socio-economic interactions. The first chapter focuses on purely competitive strategic bilateral interactions - contests. I analyse situations in which agents, embedded in a network, simultaneously play interrelated bilateral contest games with their neighbours. The network structure uniquely determines the behaviour of agents in the equilibrium. I also study the formation of such networks, finding that the complete k-partite network is the unique stable network topology. This implies that agents will endogenously sort themselves in partitions of friends, competing with members of other partitions. The model provides a micro-foundation for the structural balance concept in social psychology, and the main results go in line with theoretical and empirical findings from other disciplines, including international relations, sociology and biology. The second chapter is joint work with my supervisor Fernando Vega-Redondo. We study a competitive equilibrium model on a production network of firms, identifying the measure of centrality in the network that determines the profit of a firm, and network structures that maximize social welfare. The significant part of this chapter focuses on how the network mediates the effects of revenue distortions on profits of firms and social welfare. The results are that the effects of distortions propagate both upstream and downstream through the network. The centrality of the affected firm determines the magnitude of the downstream effect, and the upstream effect is determined by the intercentralities of suppliers of the affected firm. Increasing the density of the network by adding links has a non-monotonic effect on welfare. Adopting a more complex production technology can increase but also decrease the profit of a firm, depending on the network structure; while finding a new buyer will always increase the profit of a firm. In the third paper I analyse the interaction between formal legal enforcement of cooperation and the role of reputation in a heterogeneous population. By choosing to cooperate, even when the quality of the formal institution is not high, an agent signals that he has high work ethics, thereby earning reputation as a better match for future interactions. When there is reputation benefit, the welfare-maximizing quality of the enforcement institution is generally not the one that maximizes cooperation. Depending on the distribution of types in society, the effect of the increase in quality of enforcement on cooperation can be crowded in or crowded out by reputation concerns. When the institutional quality is determined endogenously, the equilibrium quality of the institution will generically be higher than the optimal quality

Promotion through Connections: Favors or Information?

Connections appear to be helpful in many contexts such as obtaining a job, a promotion, a grant, a loan or publishing a paper. This may be due to favoritism or to information conveyed by connections. Attempts at identifying both effects have relied on measures of true quality, generally built from data collected long after promotion. This empirical strategy faces important limitations. Building on earlier work on discrimination, we propose a new method to identify favors and information from classical data collected at time of promotion. Under natural assumptions, we show that promotion decisions look more random for connected candidates, due to the information channel. We obtain new identification results and show how probit models with heteroscedasticity can be used to estimate the strength of the two effects. We apply our method to the data on academic promotions in Spain studied in Zinovyeva & Bagues (2015). We find evidence of both favors and information effects at work. Empirical results are consistent with evidence obtained from quality measures collected five years after promotion