Networks: Games and Markets

Paper Session

Friday, Jan. 6, 2017 8:00 AM – 10:00 AM

Hyatt Regency Chicago, McCormick
Hosted By: Econometric Society
  • Chair: Yannis Ioannides, Tufts University

Endogenous Social Networks and Inequality in an Intergenerational Setting

Yannis Ioannides
,
Tufts University

Abstract

The paper explores the consequences for inequality of the joint evolution, endogenous or exogenous, of social connections and human capital investments. It allows for intergenerational transfers of both human capital and social networking endowments in dynamic and steady-state settings of a dynastic overlapping-generations model. Intergenerational transfer elasticities exhibit rich dependence on social effects. The dynamics of demographically increasingly complex models are shown to be tractable. The stochastic steady states of the human capital distribution are examined in the presence of shocks to underlying parameters that are interpreted as shocks to cognitive and non-cognitive skills.

Local Risk-Sharing Agreements

Wayne Gao
,
Yale University
Attila Ambrus
,
Duke University
Pau Milan
,
Autonomous University of Barcelona

Abstract

This paper considers the effect of local information constraints in risk-sharing networks. We assume individuals only observe the endowment realizations of their neighbors, and risk-sharing arrangements between two individuals can only depend on commonly observed information. We derive necessary and sufficient conditions for Pareto efficiency subject to these constraints. We provide an explicit characterization of Pareto efficient arrangements under CARA utilities and normally distributed endowments. With independent endowments, local equal sharing rules are shown to be optimal. For correlated endowments, the optimal sharing rule is characterized in closed-form as a function of a network measure of centrality. Contrary to other models of informal insurance in networks, more central individuals are likely to become quasi insurance providers to more peripheral individuals, and attain more volatile consumption. We argue that the current framework has important implications for empirical tests of risk-sharing, and that standard estimates of risk-sharing tests may be decomposed into an underlying heterogeneity of insurance opportunities that can be interpreted economically in terms of consumption volatility.

Anonymous Network Games

Wade Hann-Caruthers
,
California Institute of Technology
Omer Tamuz
,
California Institute of Technology

Abstract

We study a class of network games in which players are anonymous, in the sense that the game looks the same from each player's point of view. Fixing the local interaction, we compare the equilibria obtained on large finite networks and on infinite networks, and show that despite the fact that the game is locally indistinguishable to the agents, on infinite networks there is generally a richer equilibrium set.

Firm Capabilities and Industry Structure

Jun Chen
,
California Institute of Technology
Matthew Elliott
,
University of Cambridge

Abstract

We model firms as sets of scarce capabilities, where each capability provides a source of competitive advantage in some markets. Each market is also associated with a set of capabilities, those that are valued by it. Firm and market hypergraphs represent this information. Our approach provides a new perspective on several industrial organization literatures including merger analysis, strategic alliances and industry dynamics. We argue that merger analysis should be more holistic and that profitable joint ventures increase consumer surplus even when they reduce competition. We also provide formal foundations for a prominent theory of competitive advantage in the management literature.
JEL Classifications
  • C0 - General