Essays on economics networks

This thesis belongs to the growing field of economic networks. In particular, we develop three essays in which we study the problem of bargaining, discrete choice representation, and pricing in the context of networked markets. Despite analyzing very different problems, the three essays share the common feature of making use of a network representation to describe the market of interest.

In Chapter 1 we present an analysis of bargaining in networked markets. We make two contributions. First, we characterize market equilibria in a bargaining model, and find that players' equilibrium payoffs coincide with their degree of centrality in the network, as measured by Bonacich's centrality measure. This characterization allows us to map, in a simple way, network structures into market equilibrium outcomes, so that payoffs dispersion in networked markets is driven by players' network positions. Second, we show that the market equilibrium for our model converges to the so called eigenvector centrality measure. We show that the economic condition for reaching convergence is that the players' discount factor goes to one. In particular, we show how the discount factor, the matching technology, and the network structure interact in a very particular way in order to see the eigenvector centrality as the limiting case of our market equilibrium.

We point out that the eigenvector approach is a way of finding the most central or relevant players in terms of the “global” structure of the network, and to pay less attention to patterns that are more “local”. Mathematically, the eigenvector centrality captures the relevance of players in the bargaining process, using the eigenvector associated to the largest eigenvalue of the adjacency matrix of a given network. Thus our result may be viewed as an economic justification of the eigenvector approach in the context of bargaining in networked markets.

As an application, we analyze the special case of seller-buyer networks, showing how our framework may be useful for analyzing price dispersion as a function of sellers and buyers' network positions.

Finally, in Chapter 3 we study the problem of price competition and free entry in networked markets subject to congestion effects. In many environments, such as communication networks in which network flows are allocated, or transportation networks in which traffic is directed through the underlying road architecture, congestion plays an important role. In particular, we consider a network with multiple origins and a common destination node, where each link is owned by a firm that sets prices in order to maximize profits, whereas users want to minimize the total cost they face, which is given by the congestion cost plus the prices set by firms. In this environment, we introduce the notion of Markovian traffic equilibrium to establish the existence and uniqueness of a pure strategy price equilibrium, without assuming that the demand functions are concave nor imposing particular functional forms for the latency functions. We derive explicit conditions to guarantee existence and uniqueness of equilibria. Given this existence and uniqueness result, we apply our framework to study entry decisions and welfare, and establish that in congested markets with free entry, the number of firms exceeds the social optimum.

The defining characteristics of alternative food initiatives in Ireland: a social movement battling for an alternative food future?

Alternative food initiatives (AFIs) have been described as an attempt to change and improve aspects of how the food system operates. They are focused around more traditional, local and sustainable food production and circulation. AFIs such as farmers’ markets, allotments and community gardens, share a desire to reduce the number of steps food goes through from production to plate. The role of these initiatives in the food system, and their potential to impact real change, has however been questioned. Working to better understand this issue is a central concern of this research. To do this a two tier analysis has been deployed. The first tier involves identifying the characteristics and general dynamics of AFIs. Bourdieu’s theory of practice, and the theories of field and capital, are the concepts applied. The research then uses these findings in the second tier of analysis concerned with relating AFI characteristics and dynamics back to their key traits, positive and negative, as well as arguments made about AFI’s role identified from previous research. Another part of this second tier of analysis is exploring if AFIs, the producers, consumers, organisations and groups that make up this phenomenon, can be considered a social movement. AFIs can be referred to collectively as a social movement, but are not often explored theoretically from this perspective. AFIs in Ireland provide the empirical context for this research. A series of qualitative interviews in four areas of Ireland, as well as evidence from primary and secondary sources are analysed. The research finds that AFIs can be understood as the potential beginnings of a lifestyle social movement. Leaders are of central importance to its development. It is also found that an important role of AFIs is revitalising, supporting and contributing to food culture.

Critical Nodes In Directed Networks

Critical nodes—or “middlemen”—have an essential place in both social and economic networks when considering the flow of information and trade. This paper extends the concept of critical nodes to directed networks and in doing so identify strong and weak middlemen.
Node contestability is introduced as a form of competition in networks; a duality between uncontested intermediaries and middlemen is established. The brokerage power of middlemen is formally expressed and a general algorithm is constructed to measure the brokerage power of each node from the networks adjacency matrix. Augmentations of the brokerage power measure are discussed to encapsulate relevant centrality measures. Furthermore, we extend these notions and provide measures of the competitiveness of a network.
We use these concepts to identify and measure middlemen in two empirical socio-economic networks, the elite marriage network of Renaissance Florence and Krackhardt’s advice net- work.

The complexity of biodiversity: A biological perspective on economic valuation

To value something, you first have to know what it is. Bartkowski et al. (2015) reveal a critical weakness: that biodiversity has rarely, if ever, been defined in economic valuations of putative biodiversity. Here we argue that a precise definition is available and could help focus valuation studies, but that in using this scientific definition (a three-dimensional measure of total difference), valuation by stated-preference methods becomes, at best, very difficult.We reclassify the valuation studies reviewed by Bartkowski et al. (2015) to better reflect the biological definition of biodiversity and its potential indirect use value as the support for provisioning and regulating services. Our analysis shows that almost all of the studies reviewed by Bartkowski et al. (2015) were not about biodiversity, but rather were about the 'vague notion' of naturalness, or sometimes a specific biological component of diversity. Alternative economic methods should be found to value biodiversity as it is defined in natural science. We suggest options based on a production function analogy or cost-based methods. Particularly the first of these provides a strong link between economic theory and ecological research and is empirically practical. Since applied science emphasizes a scientific definition of biodiversity in the design and justification of conservation plans, the need for economic valuation of this quantitative meaning of biodiversity is considerable and as yet unfulfilled.

Allocation rules on networks

When allocating a resource, geographical and infrastructural constraints have to be taken into account. We study the problem of distributing a resource through a network from sources endowed with the resource to citizens with claims. A link between a source and an agent depicts the possibility of a transfer from the source to the agent. Given the supplies at each source, the claims of citizens, and the network, the question is how to allocate the available resources among the citizens. We consider a simple allocation problem that is free of network constraints, where the total amount can be freely distributed. The simple allocation problem is a claims problem where the total amount of claims is greater than what is available. We focus on consistent and resource monotonic rules in claims problems that satisfy equal treatment of equals. We call these rules fairness principles and we extend fairness principles to allocation rules on networks. We require that for each pair of citizens in the network, the extension is robust with respect to the fairness principle. We call this condition pairwise robustness with respect to the fairness principle. We provide an algorithm and show that each fairness principle has a unique extension which is pairwise robust with respect to the fairness principle. We give applications of the algorithm for three fairness principles: egalitarianism, proportionality and equal sacrifice.

Social innovation in local food in Japan: Choku-bai-jo markets and Teikei cooperative practices

The working paper depicts two innovative examples from Japan of the direct supply of food, which involves the development of closer producer-consumer relations, as well as closer producer-producer networks. Choku-bai-jo and Teikei networks are considered as examples of practices implicated in alternative food networks (AFNs). One example has become a quasi-public endeavour and is seen by the Japanese state as a legitimate part of rural development and is promoted in support of small producers. The other is borne from consumer concern over food quality and, despite its long-lived status, this arrangement remains marginal and with little institutional or governmental support. A model which blends the organization and aims of both examples holds potential for a more sustainable eco-economic future.

Determinants of the Economic Use of Patented Inventions: An Analysis of European Patents

The purpose of this research is to provide empirical evidence on determinants of the economic use of patented inventions in order to contribute to the literature on technology and innovation management. The current work consists of three main parts, each of which constitutes a self-consistent research paper. The first paper uses a meta-analytic approach to review and synthesize the existing body of empirical research on the determinants of technology licensing. The second paper investigates the factors affecting the choice between the following alternative economic uses of patented inventions: pure internal use, pure licensing, and mixed use. Finally, the third paper explores the least studied option of the economic use of patented inventions, namely, the sale of patent rights. The data to empirically test the hypotheses come from a large-scale survey of European Patent inventors resident in 21 European countries, Japan, and US. The findings provided in this dissertation contribute to a better understanding of the economic use of patented inventions by expanding the limits of previous research in several different dimensions.

Cost-effectiveness of a telephone-delivered intervention for physical activity and diet

Background: Given escalating rates of chronic disease, broad-reach and cost-effective interventions to increase physical activity and improve dietary intake are needed. The cost-effectiveness of a Telephone Counselling intervention to improve physical activity and diet, targeting adults with established chronic diseases in a low socio-economic area of a major Australian city was examined. Methodology/Principal Findings: A cost-effectiveness modelling study using data collected between February 2005 and November 2007 from a cluster-randomised trial that compared Telephone Counselling with a “Usual Care” (brief intervention) alternative. Economic outcomes were assessed using a state-transition Markov model, which predicted the progress of participants through five health states relating to physical activity and dietary improvement, for ten years after recruitment. The costs and health benefits of Telephone Counselling, Usual Care and an existing practice (Real Control) group were compared. Telephone Counselling compared to Usual Care was not cost-effective ($78,489 per quality adjusted life year gained). However, the Usual Care group did not represent existing practice and is not a useful comparator for decision making. Comparing Telephone Counselling outcomes to existing practice (Real Control), the intervention was found to be cost-effective ($29,375 per quality adjusted life year gained). Usual Care (brief intervention) compared to existing practice (Real Control) was also cost-effective ($12,153 per quality adjusted life year gained). Conclusions/Significance: This modelling study shows that a decision to adopt a Telephone Counselling program over existing practice (Real Control) is likely to be cost-effective. Choosing the ‘Usual Care’ brief intervention over existing practice (Real Control) shows a lower cost per quality adjusted life year, but the lack of supporting evidence for efficacy or sustainability is an important consideration for decision makers. The economics of behavioural approaches to improving health must be made explicit if decision makers are to be convinced that allocating resources toward such programs is worthwhile.

Informational city

Many cities worldwide face the prospect of major transformation as the world moves towards a global information order. In this new era, urban economies are being radically altered by dynamic processes of economic and spatial restructuring. The result is the creation of ‘informational cities’ or its new and more popular name, ‘knowledge cities’. For the last two centuries, social production had been primarily understood and shaped by neo-classical economic thought that recognized only three factors of production: land, labor and capital. Knowledge, education, and intellectual capacity were secondary, if not incidental, factors. Human capital was assumed to be either embedded in labor or just one of numerous categories of capital. In the last decades, it has become apparent that knowledge is sufficiently important to deserve recognition as a fourth factor of production. Knowledge and information and the social and technological settings for their production and communication are now seen as keys to development and economic prosperity. The rise of knowledge-based opportunity has, in many cases, been accompanied by a concomitant decline in traditional industrial activity. The replacement of physical commodity production by more abstract forms of production (e.g. information, ideas, and knowledge) has, however paradoxically, reinforced the importance of central places and led to the formation of knowledge cities. Knowledge is produced, marketed and exchanged mainly in cities. Therefore, knowledge cities aim to assist decision-makers in making their cities compatible with the knowledge economy and thus able to compete with other cities. Knowledge cities enable their citizens to foster knowledge creation, knowledge exchange and innovation. They also encourage the continuous creation, sharing, evaluation, renewal and update of knowledge. To compete nationally and internationally, cities need knowledge infrastructures (e.g. universities, research and development institutes); a concentration of well-educated people; technological, mainly electronic, infrastructure; and connections to the global economy (e.g. international companies and finance institutions for trade and investment). Moreover, they must possess the people and things necessary for the production of knowledge and, as importantly, function as breeding grounds for talent and innovation. The economy of a knowledge city creates high value-added products using research, technology, and brainpower. Private and the public sectors value knowledge, spend money on its discovery and dissemination and, ultimately, harness it to create goods and services. Although many cities call themselves knowledge cities, currently, only a few cities around the world (e.g., Barcelona, Delft, Dublin, Montreal, Munich, and Stockholm) have earned that label. Many other cities aspire to the status of knowledge city through urban development programs that target knowledge-based urban development. Examples include Copenhagen, Dubai, Manchester, Melbourne, Monterrey, Singapore, and Shanghai. Knowledge-Based Urban Development To date, the development of most knowledge cities has proceeded organically as a dependent and derivative effect of global market forces. Urban and regional planning has responded slowly, and sometimes not at all, to the challenges and the opportunities of the knowledge city. That is changing, however. Knowledge-based urban development potentially brings both economic prosperity and a sustainable socio-spatial order. Its goal is to produce and circulate abstract work. The globalization of the world in the last decades of the twentieth century was a dialectical process. On one hand, as the tyranny of distance was eroded, economic networks of production and consumption were constituted at a global scale. At the same time, spatial proximity remained as important as ever, if not more so, for knowledge-based urban development. Mediated by information and communication technology, personal contact, and the medium of tacit knowledge, organizational and institutional interactions are still closely associated with spatial proximity. The clustering of knowledge production is essential for fostering innovation and wealth creation. The social benefits of knowledge-based urban development extend beyond aggregate economic growth. On the one hand is the possibility of a particularly resilient form of urban development secured in a network of connections anchored at local, national, and global coordinates. On the other hand, quality of place and life, defined by the level of public service (e.g. health and education) and by the conservation and development of the cultural, aesthetic and ecological values give cities their character and attract or repel the creative class of knowledge workers, is a prerequisite for successful knowledge-based urban development. The goal is a secure economy in a human setting: in short, smart growth or sustainable urban development.

Supermarkets and agro-industrial foods : the strategic manufacturing of consumer trust

There is increasing evidence of a weakened platform of consumer trust in mass produced food products. The resistance shown by consumers to the agro-industrial paradigm is evident in an emergent phase of reflexive consumerism, public reactions to an overly-concentrated retail sector and the rise of alternative food networks such as farmers' markets and organic box schemes. Supermarkets are responding strategically by aiming to manufacture new trust relations with consumers. This paper identifies three key strategies of trust manufacturing: (i) reputational enhancement though the institution of “behind the scenes,” business-to-business private standards; (ii) direct quality claims via private standard certification badges on food products, and ; (iii) discursive claimsmaking through symbolic representations of “authenticity” and “tradition.” Drawing upon the food governance literature and a “visual sociology” of supermarkets and supermarket produce, we highlight how trust is both commoditized and increasingly embedded into the marketing of mass-produced foods.

Urban food futures : ICTs and opportunities

Food is a vital foundation of all human life. It is essential to a myriad of political, socio-cultural, economic and environmental practices throughout history. As Kaplan [1] contends, “the scholarship on food has real pedigree.” Today, practices of food production, consumption and distribution have the potential to go through immensely transformative shifts as network technologies become increasingly embedded in every domain of contemporary life. This presents unique opportunities for further scholarly exploration on this topic, which this special issue intends to address. Information and communication technologies (ICTs) are one of the pillars of contemporary global functionality and sustenance and undoubtedly will continue to present new challenges and opportunities for the future. As such, this special issue of Futures has been brought together to address challenges and opportunities at the intersection of food and ICTs. In particular, the edition asks, what are the key roles that network technologies play in re-shaping social and economic networks of food?

The state and industrial policy in Ireland: a case study of the Irish pharmaceutical sector

There is renewed interest in the state's role in the economic sphere but a lack of research on the viability and employment effects of alternative economic models, in particular from a ‘liberal market economy’ perspective. This article addresses this gap in the human resource management literature by undertaking a detailed case study of industrial policy in the Irish pharmaceutical sector. The proactive and resource-intensive industrial policy adopted by the Irish government and development agencies is found to have underpinned a significant strategic upgrading in this sector of the Irish economy. In turn this has facilitated the growth of high-wage, high-skill jobs. The findings highlight the potential for an active industrial policy to promote employment upgrading in liberal market economies.

Sustainable food? Teikei, co-operatives and food citizenship in Japan and the UK

This paper explores in particular how Teikei groups, as forms of Community Supported Agriculture (CSA), operate in Japan, focussing on one particular group. The paper links the Teikei approach to debates around social capital and consumer-citizenship, arguing that pre-existing consumer/citizen institutions may usefully be engaged in developing food citizenship and CSA operations. The discussion is linked to CSA and various other alternative food networks (AFNs) that have grown up in various forms in Japan, the US, the UK and elsewhere in Europe over the past thirty years or so. CSA in similar fashion to Teikei involves bringing producers and consumers closer together in terms of reconnecting the agricultural producer and consumer to aid food traceability and quality (including organic). CSA also exhibits elements of new assemblies of agricultural governance based on enhanced consumer-citizenship where consumers, to varying degrees, have a say in what and how produce is grown and how the land is managed.

Exploring smart grid possibilities: a complex systems modelling approach

Smart grid research has tended to be compartmentalised, with notable contributions from economics, electrical engineering and science and technology studies. However, there is an acknowledged and growing need for an integrated systems approach to the evaluation of smart grid initiatives. The capacity to simulate and explore smart grid possibilities on various scales is key to such an integrated approach but existing models – even if multidisciplinary – tend to have a limited focus. This paper describes an innovative and flexible framework that has been developed to facilitate the simulation of various smart grid scenarios and the interconnected social, technical and economic networks from a complex systems perspective. The architecture is described and related to realised examples of its use, both to model the electricity system as it is today and to model futures that have been envisioned in the literature. Potential future applications of the framework are explored, along with its utility as an analytic and decision support tool for smart grid stakeholders.