Issue No. 21/2014

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CTN Newsletter n.21 - March 2014




Vincent Vannetelbosch, CORE

Dear Readers,

The 19th Coalition Theory Network (CTN) workshop was organized jointly by CORE (Université catholique de Louvain) and CEREC (Université Saint-Louis) and was held at the Université Saint-Louis, Brussels, Belgium on January 30-31, 2014.

This year we had 38 talks of high scientific quality on recent developments in network, matching and coalition theory, including 4 keynote lectures: Francis Bloch (Université Paris 1), Andrea Galeotti (University of Essex), Jean Jacques Herings (University of Maastricht), and Matthew Jackson (Standford University). A scientific committee chaired by Ana Mauleon and Vincent Vannetelbosch selected other speakers. During two days 78 participants made the success of the 19th CTN workshop. As has become the norm, there were many submissions. The rejection rate was 60%. A complete copy of the final programme is available here.

The history of the CTN began in 1995, when FEEM joined the CORE in the organization of a workshop on the theory of coalition formation. Later on CES, GREQAM, Maastricht, MOVE, Vanderbilt and Warwick joined the CTN. CTN is now pleased to welcome a new partner, the Center for Study of Diversity and Social Interactions at NES (Moscow). Shlomo Weber, who was a CTN co-founder, is the leading researcher of CSDSI.

Next year CTN will celebrate its 20th anniversary in Venice! As part of the festivities, a special CTN event will be held in Baton Rouge and co-organized with Sudipta Sarangi (more information soon). There will be special sessions dedicated to CTN at the upcoming PET Conference in Seattle (11-13 July), organized by Francis Bloch (on Matching), Ana Mauleon (on Coalition Formation) and Vincent Vannetelbosch (on Networks).

I look forward to meeting all of you in Seattle, Baton Rouge or Venice.

Vincent Vannetelbosch

From theory to application

Meeting Friends of Friends: Scientists, Teenagers, and International Trade

Yann Bramoullé, Groupement de Recherche en Economie Quantitative d'Aix-Marseille (GREQAM) - Université de Marseille, France

How do agents form new connections? Some introspection should convince most readers that existing social networks have a strong impact on the formation of new relationships. We meet new friends - or our future spouse - through common friends; our collaborators introduce us to their collaborators; and we ask for advice and recommendations about job candidates and new business partners to trusted sources. Economists have started to analyze these effects in a systematic manner and to work out some of their economic and social implications. The emerging scientific picture is quite intriguing and points to common mechanisms at work behind phenomenon as diverse as academic collaborations, scientific citations, teenage friendships, and international trade.

Fafchamps, Goyal and van der Leij (2010) study the formation of new collaborations between academic economists over 20 years, from 1980 to 1999. They find that proximity in the existing coauthorship network has a strong impact on the likelihood to form a new collaboration. For instance, being at a network distance 2 instead of 3 raises the probability of initiating a collaboration by 27%. Building confidence in causal interpretations with observational data is always a challenge; the authors skillfully rise to it in their analysis. In particular, they control for any time-invariant characteristics of pairs of economists and for main time varying confounding factors. They also show that network proximity affects first collaborations but not subsequent collaborations after the first. Overall, their results are strongly suggestive of referral effects at work in scientific networks. A common coauthor may introduce and vouch for a potential new collaborator.

In an influential study, Jackson and Rogers (2007) provide some indirect but substantial empirical evidence about the role played by the existing network in shaping up new links. They develop a neat theoretical model of growing, stochastic network formation. New nodes are born sequentially. They first meet some existing nodes at random and then meet some friends of these first contacts. The authors solve the model by a clever use of analytical techniques imported from physics. They show that the model generates five key empirical features observed in real social networks : low diameter, high clustering, fat tails in degree distribution, positive degree-degree correlation and negative degree-clustering correlation. This type of model, founded on network-based meetings, currently provides the only known parsimonious way to generate all of these realistic features. The authors then investigate some consequences of network-based meetings and find that it tends to generate inequality in connections. Well-connected agents are more easily accessed through the network and hence gain new connections at a faster rate. This mechanism likely plays an important role in explaining the emergence of global winners in network contexts: influential scientists, highly cited papers, very popular teenagers or dominant exporters.

More recently, researchers have started to investigate how network-based meetings may interact with individual characteristics. In particular, we know that homophily is pervasive in network settings: Links are generally much more likely to connect similar agents. How does homophily interact with network-based meetings? Does forming new links through common friends dampen or amplify assortative tendencies? Bramoullé et al. (2012) extend the analysis of Jackson and Rogers (2007) to a setup where agents are of different types and meetings may be type-biased. They show that network-based meetings actually tend to reduce biases in random meetings. Friends' friends generally form a more diverse crowd than direct friends. This typically generates a negative relationship between degree and homophily. As a node ages and gets more connections, it gets a larger share of his new connections through friends of friends and hence from diverse nodes. The authors then look at citation patterns for articles published in journals from the American Physical Society between 1985 and 2003. They find that, indeed, the proportion of citations that an article obtains from other articles in the same field generally decreases as the paper ages and becomes more cited. This is consistent with the theoretical model and with the practice, common in academia, of learning about relevant papers because they are cited in known sources.

In their working paper version, Bramoullé and Rogers (2009) also look at gender-based homophily in friendship nominations among teenagers, based on the first wave of the National Longitudinal Survey of Adolescent Health (Add Health). This survey collected detailed information on about 90 000 teenagers in American middle and high schools in the academic year 1994 – 1995. In particular, most students within schools were sampled and interviewed teenagers were asked to name up to five best male friends and five best female friends. Authors find a strong decreasing relationship between homophily and popularity. For instance, the probability to receive a nomination from a friend of the same gender is equal to 75% for teenagers who get a unique nomination but drops to 51% for teenagers with ten nominations. This pattern holds for boys and girls separately and provides some indirect evidence for the importance of network-based meetings in teenager socialization.

In two recent and far reaching papers, Thomas Chaney provides what may be, to date, the most important economic application of the idea that new connections are formed through the existing network. Chaney (2014) considers international trade and develops a new model to explain how exporters grow and get access to distant markets. His model can be viewed as a spatial variant of the model of Jackson and Rogers (2007). Firms are located at fixed positions in space. To be able to trade, they first must find foreign trading partners and this search takes place in two ways. Some firms meet at random and these random meetings are spatially biased. Then, once a firm has acquired a network of contacts in another location, it can remotely search for new trading partners from these locations. As a firm grows, it thus gets connected with trading partners further away and exports over longer distances. The author shows that the model generates two key predictions on the dynamics of trade and finds strong support for both predictions using data on French firms from 1986 to 1992. First, when a firm exports to more countries in year t, it is more likely to enter a new market in year t+1. This is consistent with the fact that under network-based linking, nodes with more links get new connections at a faster rate. Second, a firm is more likely to enter new markets geographically closer to the countries to which it is currently exporting. These results provide strong indirect evidence for the fact that firms build upon their existing networks of consumers, suppliers and business partners to establish new connections.

In a recent working paper, the author takes these ideas to the next level (Chaney 2013). He shows that such network-based modeling of informational frictions can actually explain the gravity equation, a key empirical regularity of international trade. The gravity equation states that bilateral exports between countries are proportional to economic size and inversely proportional to geographic distance. It has received strong empirical support in the literature on international trade and seems remarkably stable over time. However, economists have been struggling to provide a satisfactory, microfounded explanation for this empirical regularity. Chaney's study may well close this gap in our understanding and will likely generate much further interest into the economics of social networks.


Visit the new section on the CTN website

CTN News & Announcements

CSDSI teamA new partner
CTN is pleased to welcome the Center for Study of Diversity and Social Interactions (CSDSI) at NES (Moscow) as new CTN partner. The scientific head of CSDSI is Shlomo Weber. The research team of CSDSI is currently composed of 34 members. Main research lines include coalition theory, ethno-linguistic diversity, social capital, fiscal federalism, social networks and collective action, but also Russian economic history and context advertising. Our CTN reporters interviewed Sergei Izmalkov who was representing CSDSI at the 19th CTN workshop.


Sergei Izmalkov: "There is a growing interest in the analysis of social and economic networks in our center, especially applied to the study of cultural and ethnic diversity. We bring together people with different backgrounds who combine new mathematical and econometric methods to study the determinants and consequences of diversity. CSDSI is looking forward to engaging in CTN and hopes to bring its own original perspective to the CTN workshops. We are prepared to take up the organization of the yearly workshop in the future. Of course January can be quite cold in Russia. But the people and the atmosphere of Moscow will warm you up and make your trip to Russia special."

Needless to say that we are all looking forward to that event!

19th CTN Workshop - Outputs

Our CTN reporters, Tom Truyts and Gilles Grandjean, seized the opportunity to ask some questions to the 4 keynote speakers of the 19th CTN Workshop, held in Brussels last 30-31 January.

What are the main accomplishments and challenges of the economic analysis of networks and coalitions?

Matt Jackson: "... networks are increasingly used in applications in other areas. For instance, a lot of researchers in development economics are using networks in the field. Networks are also increasingly actively used in labor economics, finance, international relations and other areas. That seems a healthy sign that network theory has progressed to a point where we have a body of models and basic understandings that people can be using in applications. People in the profession are realizing the importance of social structures and particular network structures in explaining behaviour."

Is there an evolution from theory to more empirical applications? And what about the development of new methodologies?

Andrea Galeotti: "I think theoretical and empirical developments come together. What a lot of theoretical questions miss are good models of networks that can be taken to the data. At the other hand, a lot of empirical work assumes that networks are fixed and given, which is of course a serious concern when formulating policy recommendations. Hopefully, this interplay between theoretical and empirical developments will keep on moving together."

Matt Jackson: "One of the most important open areas is that networks are necessarily endogenous. Therefore, all the analyses of peer effects necessarily need to take this endogeneity of one's peers into account. This now pushes focus back to the theory, where we need to start developing models of network formation that can be analysed statistically. So there is an exciting opening for us to figure out how to develop the theoretical models which we have and which are fairly abstract, and bring them to a point where people can actually use and estimate them, because they cannot take these models as something completely random or exogenous."

Francis Bloch: "We need to develop new models as well as new techniques. Because we cannot stick with the completely deterministic models at the one hand, and have the completely statistical models at the other hand, which lose a lot of the incentive issues. How to put these together, despite some nice attempts, is still a very open question."

To what extent has the development of the economic analysis of networks and coalitions had a significant impact on policy and society?

Matt Jackson: "Where you see this most is that most central banks are now studying network based models. They need better models, but they are at present working with what they have. But they are all trying to calculate the structure and size of indirect risks. This is not necessarily a fundamental change in their policy, but it is something which they realize they have to understand."

Jean Jacques Herings: "You also see it in the evaluation of scientific research, which increasingly uses measures based on eigenvectors to assess which contributions have been important, rather than pure impact. I think this would not have been possible without the development of network analysis. Also in competition policy, sectors that involve networks used to be considered the exclusive domain of the public sector. Now people have been thinking much more about competition on the network, and competition between networks. A lot of work is still needed to better understand such competition on or between networks."

You are all frequent participants to the CTN workshops. What features of CTN workshops do you appreciate most?

Andrea Galeotti: "The CTN workshop was the first scientific conference which I attended, as a PhD student. So I have an emotional attachment to the CTN. It is a nice occasion to see what others are doing and see young people present their work."

Matt Jackson: "Few places have a large concentration of people working on networks and coalitions. In these areas, it is particularly important to have events where people can come together. This is particularly important for young people who need feedback on their work and need to see what is going on and what are the focal points in networks and coalitions."

This year's workshop was organized in Brussels. What (if anything) do you like about Brussels or Belgium?

Francis Bloch: "The beers, although they are very strong."

Jean-Jacques Herings: "Apart from the city, Brussels is also nice to travel to."

Andrea Galeotti: "It must have a very high eigenvector centrality, so that is nice."

PET 2014 Seattle: CTN sessions Call for Papers

We invite you to submit one of your papers to one of the Coalition Theory Network (CTN) Sessions organized at PET 14 in Seattle, 11-13 July.

When you do submit your paper, please choose in the subject category either the special sessions organized by Francis Bloch (Topics on Matching) or the special sessions organized by Ana Mauleon (Topics on Coalition Theory) or the special sessions organized by Vincent Vannetelbosch (Topics on Networks). You can submit your paper at the conference website until March 31 .

We look forward to seeing you in Seattle!

Francis Bloch, Ana Mauleon, Vincent Vannetelbosch

News from Maastricht University

M-BEES 2014: 7th Maastricht Behavioral and Experimental Economics Symposium Theory and Experiments 
The Economics Department (AE1) of Maastricht University hosts the 7th Maastricht Behavioral and Experimental Economics Symposium (M-BEES) on June 2, 2014. The broad topic of the Symposium is Theory and Experiments and centers around the question if and how economic experiments can inform economic theory and vice versa. 
Key note speakers:
- Muriel Niederle (Stanford University)
- Drazen Prelec (Massachusetts Institute of Technology)
>>> more info 

News from GREQAM

Yann Bramoullé has been awarded an ERC Consolidator Grant for his research proposal on "Markets and Networks". These grants are allocated by the European Research Council (ERC) to researchers of any nationality working in Europe, with 7 to 12 years of experience since the completion of PhD, and scientific track record showing great promise. The proposals are subject to a thorough peer-reviewed evaluation process including an interview in Brussels. This process is highly competitive, with only 11% of funded proposals. The sole criterion for selection is scientific excellence. The objective of ERC grants is to recognise the best ideas, and confer status and visibility on the best brains in Europe, while also attracting talent from abroad. With about 500,000 € of research funds awarded for 4 years, Yann will be able to advance his research program on the interactions between markets and networks. The objective is to develop new economic models to understand when social relations help markets function and when they crowd out economic activity.
>>> more info

Workshop on Experimental Economics
This workshop will take place on March 21-22, 2014, and is organised by Nobuyuki Hanaki. Invited speakers include: 
- Nick Vriend, Queen Mary, London, 
- Jacob Goeree, University of Zurich.
>>> more info 



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