Issue No. 20/2013

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Year: 
2013

CTN Newsletter n.20 - September 2013

Index

 

Editorial

Myrna Wooders, Vanderbilt University

What is the CTN? The CTN, Coalition Theory Network, was established in 1995 and its current members are from eight different universities in Europe and the US.  The responsibilities of the nodes in the CTN network include hosting and organizing the annual CTN workshop and CTN sessions at conferences related the CTN mission.  But most important, the CTN is a community of scholars with common interests and a common mission to foster understanding of networks, cooperation, and coalitions. 

The CTN events and publications serve to broaden the community from the researchers at member nodes to include researchers with shared interests from multiple universities.  The reach of the CTN publications, now all on the www, is vast. CTN workshops, however, are not large.  Typically most or all nodes are involved in the selection of papers for the workshops and the selection can be tough.  Other opportunities to be involved with the CTN include contribution of papers to CTN-organized sessions at other conferences, such as, for example, the PET (Public Economic Theory) conferences.  

One aim of this note is to encourage CTN members to seek other possibilities for CTN sessions at conferences. As readers of the CTN Newsletter know, the next CTN Workshop will be held in Brussels, January 30th-31st, 2014, with a submission deadline of November 22nd, 2013.  The next PET (Public Economic Theory) conference, to be held in Seattle, Washington, will welcome submissions to its CTN-organized sessions.  Updates about PET 14 Seattle will appear onwww.apet.org.

With all best wishes to the community of the CTN!

Myrna Wooders

Vanderbilt University 

From theory to application

Social Network Theory, Informal Insurance and the Diffusion of Microfinance

Francis Bloch, Department of Economics, University Paris I and Paris School of Economics

Life in developing countries is subject to much higher risk than in industrialized nations. Random climatic events (like the date of the onset of the monsoon), accidents and illnesses create a highly uncertain environment, in which economic agents have an increased need for insurance in order to smooth consumption and avoid falling into poverty. However, most villages lack access to formal insurance and credit markets, and villagers must resort to informal contact with other villagers to receive short term loans or transfers. This same lack of formal credit markets  prevents entrepreneurs from setting up shops and workshops, emphasizing the need for alternative financing channels such as microfinance groups.

The access to informal insurance and credit markets is strongly determined by a village's social structure, and in particular by the network of relations among villagers. Tranfers in money and in kind usually follow social links, whether they are formed by kinship, gender, occupation or simple friendship. Information about agents' needs and capacities is more easily acquired through the village social network. In the reverse direction, information about new technologies or opportunities goes through word of mouth and the diffusion of new methods is clearly shaped by the village social network. While  the importance of social networks and social capital has long been recognized,  recent advances in social network theory have transformed our thinking about these issues, and provided new insights which ought to be incoporated in the design of social transfer and microfinance programs.

Consider the following design problem : in order to insure villagers against idiosyncratic risk (like illness or accident), an NGO devises a transfer scheme where villagers in need receive money from other villagers, in order to equalize as much as possible consumption inside the village. While the problem may sound combinatorially intractable, Bramoullé and Kranton have shown, in an article published in the Journal of Economic Behavior and Organization in 2007, that bilateral contracts are sufficient to ensure full consumption sharing in the village. By a succession of bilateral money exchanges, any tranfer scheme can be achieved, as long as the network is connected so that no agent is excluded from the village social network. Bramoullé and Kranton overlook an important aspect of informal insurance schemes : reciprocity. An agent can only be incentivized to make a transfer today if she believes that she will receive a transfer tomorrow if the need arises. Bloch, Genicot and Ray, in an article published in the Journal of Economic Theory in 2007 show that, when reciprocity is taken into account,  the archtecture of the social network matters in the success of informal insurance schemes. They show that the key structural element of the network is the length of cycles : if cycles are short, it is easier to transmit information about agents reneging on their promises, and insurance transfers are more likely to be sustained. In order to shorten cycles in the social network, new links have to be created between carefully chosen targets in the village. Ambrus Mobius and Szeidl, in a paper forthcoming in the American Economic Review, link the agents' incentives to transfer to what they term 'social colateral' : by reneging on his promise, an agent loses the benefits of interacting with the agent he cheated. With this notion of punishment, networks supporting informal insurance are characterized by their degree of expansiveness, a measure of the average number of connections between any group of agents in the network and the rest of the community. In order to increase transfers in the village, one needs to make connections more fluid, by guaranteeing that no agent concentrates intermediation power and adding connections to eliminate bridges in the social network.

When transfers are in kind, they typically take the form of favors which are exchanged in the village. A favor differs from a monetary transfer as it is pair-specific : if a villager needs to use a specific tool, there may be only one other villager who can lend it to him. The structure of social networks which support favor exchanges differs from the structure of social networks supporting money transfers. In a paper published in the American Economic Review in 2012, Jackson, Rodriguez-Barraquer and Tan show that a network supports favor exchange when every link is supported, meaning that any pair of agents who are linked have a common friend. This particular network structure – termed 'social quilts' by Jackson, Rodriguez-Barraquer and Tan, involves a hierarchical union of clusters, but does not require a high level of clustering. Data from Indian villages corroborate the theoretical findings, showing that village networks may have a low level of clustering, but typically involve a high fraction of supported links.

Networks can also be used as information channels to diffuse innovations. In a recent experiment conducted in Indian villages in Karnataka and reported in a paper by Banerjee, Chandrasekhar, Duflo and Jackson just published in Science, a lending group used the village social network to disseminate information about a microfinance program. Initially, the villages were surveyed to map the social links among agents, based on different dimensions like pairs of agents going to the temple together, or pairs of agents lending to one another. In  a second step, one individual of the village was targeted as the seed from which information about the progam would be diffused. One of the objectives of the experiment is to identify how the speed of diffusion of the information depends on the centrality of the agent chosen as seed. The experiment led to two striking conclusions. First, the 'correct' notion of centrality which explains best the diffusion of information is the Katz prestige centrality measure, where an agent's centrality depends on the centrality of his neighbors. Second, the speed of diffusion does not depend on the number of agents who actually participate in the program, but simply on the number of agents who are informed about the program. Even though incentives to transmit information differ between participants and nonparticipants, this difference has little global effect on the diffusion of microfinance. These results clearly show how sophisticated centrality measures borrowed from social network theory can help NGOs target specific individuals in villages in order to improve the efficiency of social programs in developing countries.

References

Visit the new section on the CTN website

CTN News & Announcements

19th CTN Workshop 
Brussels, Belgium, 30-31 January 2014
http://www.feem-web.it/ctn/events/14_Brussels/ctn19i.html

The 19th CTN workshop will be organized jointly by CORE (Université Catholique de Louvain) and CEREC (Université Saint-Louis) and will be held at the Université Saint-Louis, Brussels, Belgium on January 30-31, 2014. The workshop will be aimed at providing an avenue for presenting and discussing new contributions on network, coalition and matching theory.  

Invited speakers:
Francis Bloch, University Paris I and Paris School of Economics, France
Andrea Galeotti, University of Essex, UK
Jean Jacques Herings, Maastricht University, The Netherlands
Matthew Jackson, Stanford University, USA 

Submission
Please submit papers or extended abstracts by November 22, 2013. We also invite economists not affiliated with the CTN network to submit their papers.  
Papers and extended abstracts (in pdf format) can only be submitted to vincent.vannetelbosch@uclouvain.be.
All acceptance/rejection decisions will be communicated by December 16, 2013.

News from GREQAM

Aix-Marseilles University will award a honorary doctorate to Matt Jackson on November 25th. At this occasion and to further acknowledge Matt’s contribution to the economics of social networks, GREQAM will organize a workshop in Matt’s honour (more information contacting Yann Bramoullé, yann.bramoulle@ecn.ulaval.ca).

Yann Bramoullé from GREQAM is organizing the GTI seminar series on interactions and networks this year. Planned speakers for the Fall semester are Francesco Nava (LSE), Frédéric Deroian (GREQAM), Margherita Comola (PSE), Matthew Lindquist (Stockholm), and Marco van der Leij (Amsterdam). More information can be found at http://www.amse-aixmarseille.fr/fr/content/groupe-de-travail-interaction

Fernando Vega-Redondo will give a lecture on globalization and networks at Aix-Marseille School of Economics on December 3d. See http://www.amse-aixmarseille.fr/fr/content/amse-globalization-lectures-7

 

News from CES

Francis Bloch has moved to CES from Ecole Polytechnique, and is now part of the CTN team at CES.

 

News from FEEM

Two articles of potential interest for the CTN community have been recently published in FEEM's Review of Environment, Energy and Economics - Re3:

Smoking and Social Interaction
by Sergio Currarini, Elena Fumagalli and Fabrizio Panebianco published on 2 May 2013

Turning the Tide against Inaction: Partial Climate Agreements with Open Entry 
by Fabio Sferra and Massimo Tavoni, published on 11 July 2013

 

Visit the CTN Members' seminars web pages

CES: http://centredeconomiesorbonne.univ-paris1.fr/bandeau-haut/seminaires/
CORE: http://www.uclouvain.be/en-43617.html
FEEM: http://www.feem.it/getpage.aspx?id=82&sez=Events&padre=21&tab=1
GREQAM: http://www.greqam.fr/spip.php?rubrique13&lang=fr
Maastricht: http://www.fdewb.unimaas.nl/meteor-seminar-et
MOVE: http://www.movebarcelona.eu/index.php/events/upcoming-events 
Vanderbilt: http://www.vanderbilt.edu/econ/seminars-and-research/index.html
Warwick: http://www2.warwick.ac.uk/fac/soc/economics/forums/

 

About the CTN Newsletter The CTN Newsletter is prepared with the contribution of all the CTN Partner Institutions. Please send comments and questions to: silvia.bertolin@feem.it. 
The next issue will be published in March 2014

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