Estimating Product Quality in International Trade

In recent years empirical studies offer clear evidence on the increasing importance of intra-industry trade in presence of vertically differentiated products. These are goods that, within the same industry, are distinguished by different quality levels. In the new trade theory and in the neoclassical literature there is not a well-established methodology to estimate good's quality in international trade; this contribution presents different methodologies starting from a review of the literature and proposing alternative solutions. In the first part of the paper classical indicators of intra-industry trade are presented as well as original measures, in the vein of Aw and Roberts, starting observing the evolution of export to identify the qualitative changes in absolute terms and relative to competitors. These indicators can be influenced not only by quality shifts but also by other cyclical and structural factors. To overcome these limitations and give a better interpretation of the underlying phenomenon we present a micro-founded model that attempts to evaluate the effect of quality on export demand. This model is based on the underlying relation between vertical product differentiation, goods substitution effect and market power of exporting firms. In the last part an econometric methodology is presented to estimate price elasticity of volume market share as function of the difference in price against competitors in an inter-temporal framework. The policy implications of this research moves from a better assessment of countries international market positioning and price setting strategy to the identifications of competitive dynamics based on quality rather than on prices.product quality, intra-industry trade, vertical differentiation, international trade, price elasticity

Innovation creation and diffusion in a social network: an agent based approach

Market is not only the result of the behaviour of agents, as we can find other forms of contact and communication. Many of them are determined by proximity conditions in some kind of space: in this paper we pay a particular attention to relational space, that is the space determined by the relationships between individuals. The paper starts from a brief account on theoretical and empirical literature on social networks. Social networks represent people and their relationships as networks, in which individuals are nodes and the relationships between them are ties. In particular, graph theory is used in literature in order to demonstrate some properties of social networks summarised in the concept of Small Worlds. The concept may be used to explain how some phenomena involving relations among agents have effects on multiple different geographical scales, involving both the local and the global scale. The empirical section of the paper is introduced by a brief summary of simulation techniques in social science and economics as a way to investigate complexity. The model investigates the dynamics of a population of firms (potential innovators) and consumers interacting in a space defined as a social network. Consumers are represented in the model in order to create a competitive environment pushing enterprises into innovative process (we refer to Schumpeter’s definition): from interaction between consumers and firms innovation emerges as a relational good.Innovation; small world; computational economics; network; complexity

What if Hayek goes shopping in the bazaar?

The paper presents a comparative analysis of the peculiar institutional features of two retail markets: the middle eastern Bazaar and the western Mall (shopping center). We study the informational functions and performance of the different market institutions using an Agent Based Computational Economics (ACE) model under the assumption of behavioral learning by agents. Sellers decide which price setting strategy to adopt whereas buyers form their price beliefs exploring the market and decide which price to accept. The agents learn how to adapt and behave within the specific institutional framework to carry out their economic transactions, but market institutions, as mechanisms to coordinate information of market participants are expected to affect the price dynamics. The main area of interest concerns the question of whether the economic argument on the presumed underperformance of bazaar institutions respect to more competitive markets holds true or it is necessary a reassessment on it.Agent's beliefs; learning; adaptive behavior; market institutions; price dynamics

2004 Industry and Labour Dynamics II

Innovation creation and diffusion in a social network: an agent based approach Daniele Ietri and Marco LamieriInnovation creation and diffusion in a social network: an agent based approac

Dissortative From the Outside, Assortative From the Inside: Social Structure and Behavior in the Industrial Trade Network

It is generally accepted that neighboring nodes in financial networks are negatively assorted with respect to the correlation between their degrees. This feature would play an important 'damping' role in the market during downturns (periods of distress) since this connectivity pattern between firms lowers the chances of auto-amplifying (the propagation of) distress. In this paper we explore a trade-network of industrial firms where the nodes are suppliers or buyers, and the links are those invoices that the suppliers send out to their buyers and then go on to present to their bank for discounting. The network was collected by a large Italian bank in 2007, from their intermediation of the sales on credit made by their clients. The network also shows dissortative behavior as seen in other studies on financial networks. However, when looking at the credit rating of the firms, an important attribute internal to each node, we find that firms that trade with one another share overwhelming similarity. We know that much data is missing from our data set. However, we can quantify the amount of missing data using information exposure, a variable that connects social structure and behavior. This variable is a ratio of the sales invoices that a supplier presents to their bank over their total sales. Results reveal a non-trivial and robust relationship between the information exposure and credit rating of a firm, indicating the influence of the neighbors on a firm's rating. This methodology provides a new insight into how to reconstruct a network suffering from incomplete information.Comment: 10 pages, 10 figures, To appear in conference proceedings of the IEEE: HICSS-4

Unusual Spatial Patterns of Industrial Firm Locations Uncover their Social Interactions

In this paper we report evidence from the Italian industrial sectors whereby firms that buy and sell are spatially distributed with a pattern that reflects the microeconomic powers at play. The main finding is that firms are neither clustered around population centers nor are they situated at random. Although geography has an important role in shaping the population map of Italy, the reasons for the positional pattern of buyers and sellers appear to be social. Geographic proximity between sellers and their buyers is supported by the excess in short-distance social ties.

Missing Data as Part of the Social Behavior in Real-World Financial Complex Systems

Many real-world networks are known to exhibit facts that counter our knowledge prescribed by the theories on network creation and communication patterns. A common prerequisite in network analysis is that information on nodes and links will be complete because network topologies are extremely sensitive to missing information of this kind. Therefore, many real-world networks that fail to meet this criterion under random sampling may be discarded. In this paper we offer a framework for interpreting the missing observations in network data under the hypothesis that these observations are not missing at random. We demonstrate the methodology with a case study of a financial trade network, where the awareness of agents to the data collection procedure by a self-interested observer may result in strategic revealing or withholding of information. The non-random missingness has been overlooked despite the possibility of this being an important feature of the processes by which the network is generated. The analysis demonstrates that strategic information withholding may be a valid general phenomenon in complex systems. The evidence is sufficient to support the existence of an influential observer and to offer a compelling dynamic mechanism for the creation of the network.Comment: 17 pages, 12 figure