Working Papers
(with Sumit Joshi and Hector Tzavellas)
Abstract: Agents are typically connected in a multiplex of interrelated networks (layers). Given an initial asymmetric seed layer endowed with a nested split graph topology, we characterize the architecture of connections that bind agents in each layer of a multiplex. We propose a sequential multiplex formation game in which agents are free to choose layers and partners. Speci cally, an agent can choose any layer to add one link as well as choose any number of layers to delete existing links. Agents can also make changes to the seed layer. Adding/deleting a link on any layer generates intra-layer externalities within that layer and inter-layer externalities across other layers. The inter-layer externality transmitted from one layer to another is positive (negative) if actions on the two layers are strategic complements (substitutes). The ow of intra-layer and inter-layer externalities produce a limit multiplex in which non-seed layers that are complements (substitutes) of the seed inherit nested split graph topologies that are parallel ( ip) of the seed in the sense that high-centrality agents in the seed layer occupy high (low) centrality positions in the non-seed layer. This result is shown to hold across duplexes, triplexes, and higher dimensional multiplexes. A number of applications of this framework are also discussed.
Network Formation and Agglomeration
(Revised September 2021)
Abstract: The paper aims to illustrate the twin phenomena of (i) the formation of an equilibrium network; (ii) the incentive of manufacturing firms to relocate within a network.
The equilibrium network depends on the tradeoff between the cost of forming a direct link and the higher cost of trading via intermediaries. If the transaction cost saved from a direct link to a rural area is higher than the expense of the link itself, all regions are connected via direct links. An increase in the cost of forming a link allows urban areas to maintain direct links to other urban areas but not to rural regions. Therefore, rural areas are linked to a particular urban center, and the cities themselves form a complete network. A further increase in the cost of constructing a direct connection rise induces the formation of minimally connected networks.
Agglomeration is induced by the cost of transporting agricultural products and the transportation network itself. Also, agglomeration in the present framework occurs without scale economies and transportation costs in the manufacturing sector instead of New Economic Geography (NEG) models. By locating to a single urban region, firms can access rural areas directly (without intermediaries). Another channel through which a transportation network leads to a mono-centric equilibrium is a reduction in sharing the cost of paying for building a modern transportation network.
Risk-Sharing in Federations: Theory and Evidence
(with Syed Basher, Faruk Balli, and Sumit Joshi, Revised February 2019)
Abstract: This paper provides a simple model of a representative federation that relies on private (capital and credit markets) and public (tax and transfer) mechanisms to protect against exogenous income shocks. Key predictions of the model are: (i) when all mechanisms are put in place together, the extent of income smoothing is greater, (ii) the relative roles of the mechanisms may differ depending on the capital share of income, the federation's size, the variance of the income shocks, income of regions, the discount factor, and (iii) an increase in output synchronization exerts a negative effect on income smoothing. These predictions are tested using data sets on the US states and Canadian provinces over the period 1970--2009. Our empirical results are mostly consistent with our theoretical predictions.
Work in Progress
Network, Bargaining, and Labor
(with Sumit Joshi and Stephen Smith, Revised January 2020)
Abstract: This paper studies and compares three major strategies introduced to alleviate poverty: channeling through the existing employment relations, enhancing collective bargaining, and creating alternative employment opportunities. Each strategy has strengths as well as limitations. The first is inexpensive, but the poor only receive a share of the output. The second is effective but is only redistributive rather than productive. The third has no melt but is relatively costly to implement. We derive and interpret the efficient strategy a social planner follows, maximizing net income gains for the poor, contingent on differing costs, benefits, and resulting tradeoffs.
Structural Balance in Networks: Dyads and Triads
(with Sumit Joshi, Revised March 2018)
Abstract: The paper introduces a new measurement in a signed network that considers both dyadic and triadic relations, such as having common friends or enemies or being friends of an enemy and vice versa. We also illustrate how graph-theoretic properties affect aggregate relationships in society. To do so, we compare networks with different properties, such as structurally balanced ones and those that are not. Comparative static exercises are carried out to see the impact of an increase in negative and positive ties in a given signed network across different groups of people. We consider the impact of group fragmentation and the merging of two groups as well. The paper also compares aggregate relationships to the original adjacency matrix, where only direct links exist. As an application of the new measurement, we illustrate how a signed graph's properties affect the non-cooperative behavior of individual nodes.
Inheritance and Evolution of Networks Across Generations
(with Sumit Joshi, Sudipta Sarangi, and Hector Tzavellas, Revised September 2020)
Abstract: We consider the evolution of a network across generations where each generation lives only for two periods - youth and adulthood. At the beginning of their youth, each generation inherits their parents' network and accumulates human capital. The inherited network induces human capital formation in childhood. In their adulthood, professional life begins, and individuals form another network to produce goods and services. These two networks are interdependent as human capital formed in the first period has a positive impact on the outcome of the second. The present endeavor explains why inequality can be entrenched in a particular society across generations while not in others.
Networks, Markets, and Adverse Selection
(Revised September 2020)
Abstract: A market is an anonymous exchange mechanism where adverse selection exists, while in networks, the pre-existence of individual links can alleviate the problem of adverse selection. The paper illustrates that when both mechanisms coexist, the network mechanism exacerbates the market's adverse selection. Furthermore, when network formation can take place, multiple equilibria can occur.
Networks, Markets, and Matching
(Revised September 2020)
Abstract: In this paper, firms invest in physical capital and heterogeneous workers in human capital before production occurs. In a market where types of workers are unknown, incomplete contracts and imperfect matching exist. In the network mechanism, imperfect matching can be alleviated because of pre-existing links, but those who are not matched do not invest. When both mechanisms coexist, only the low-quality workers who are linked with a matching firm can have an incentive to choose the market over the network. Furthermore, when network formation can take place, coordination problems can occur.