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« Back to Results

Networks

Paper Session

Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, International 2
Hosted By: American Economic Association
  • Chair: Marc Rysman, Boston University

CoMap: Mapping Contagion in the Euro Area Banking Sector

Giovanni Covi
,
European Central Bank
Christoffer Kok
,
European Central Bank
Mehmet Ziya Gorpe
,
International Monetary Fund

Abstract

This paper, for the first time, investigates and models the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We then develop a balance sheet-based methodology to model contagion capturing both counterparty credit and funding risk channels of an exogenous default shock. The interaction between bank-specific loss-given-default, funding shortfall, fire sale losses, and capital threshold parameters provides an effective transmission mechanism through which the effects of shock amplifications and the spillover to other banks can be studied. We show that for certain parameter values simultaneous small shocks to domestic and international banks can generate large capital shortfalls and cascading defaults. Decomposing the results into the respective contributions by credit and funding shock provides insights to the nature of contagion. Furthermore, we map the path of contagion in its time and cross-sectional dimension to show how a given shock propagates through the banking system.

Marrying the Right One — Evidence on Social Network Effects in Politics from the Venetian Republic

Adam Telek
,
University of Alicante

Abstract

In this paper I measure the effect of social networks on politicians' career development. To this purpose, I construct a unique data set that contains information on the social network of the entire electorate of a sovereign nation, the 15th-century Republic of Venice. I identify the careers of 2.500 married politicians from the period between 1400 and 1524. Analyzing this panel of data I provide evidence that marrying the daughter of a more central father significantly improves the husband's career prospects in politics. Moreover, I show that this effect is independent from other characteristics of either families, like historical prestige, wealth or voting power (family size), and it is not biased by assortative marriages. Furthermore, I find that the network effect is accumulative (good marriage pays off over a long period) and that it is stronger and more front-loaded in bad political/economic situations (like in a defensive war).

Stable Allocations in Social Networks with Local Comparison

Chen Cheng
,
Johns Hopkins University
Yiqing Xing
,
Johns Hopkins University

Abstract

We consider a model in which an agent's payoff is based on her local ranking, i.e., the ranking of her allocation among her neighbors' in the network. An allocation is stable if it is not revoked under α-majority voting, i.e. there exists no alternative allocation, such that a fraction of at least α of the population have their local rankings strictly improved under the alternative. We find a sufficient and necessary condition for a network to permit any stable allocation: the network has an independent set of size at least (1 − α) of the population. We then characterize the size of maximal independent size, which reflects the level of stability, for Erdos Rényi random networks. We show that more connected networks, more populated networks (with a fixed link probability), or more segregated networks are less likely to permit stable allocations. We extend the model to cases when: (1) networks are directed, (2) comparisons are made only to non-neighbors, and (3) agents are insensitive to the difference in allocations unless the difference is large enough.

The Dynamic Formation of Friendships, Networks, and Homophily

Matthew O. Jackson
,
Stanford University
Stephen Nei
,
University of Oxford
Erik Snowberg
,
University of British Columbia
Leeat Yariv
,
Princeton University

Abstract

We examine friendship formation among university students over five years. Consistent with a model of costly network formation, the students begin by making friendships widely with others of different ethnicities and gender. By sophomore year they increase the number of their friendships, dropping friendships with others of different ethnicities and gender on average, and adding friendships with those of the same ethnicity and gender. Over time, their friendships also increase with others who are similar along some personality dimensions. We discuss the implications for students' learning and performance.
JEL Classifications
  • D8 - Information, Knowledge, and Uncertainty