This paper puts forward a novel approach to the analysis of direct contagion in financial network... more This paper puts forward a novel approach to the analysis of direct contagion in financial networks. Financial systems are here represented as flow networks-i.e., directed and weighted graphs endowed with source nodes and sink nodes-and the propagation of losses and defaults, originated by an exogenous shock, is here represented as a flow that crosses such a network. In establishing existence and uniqueness of such a flow function, we address a know problem of indeterminacy that arise, in financial networks, from the intercyclicity of payments. Sufficient and necessary conditions for uniqueness are pinned down. We embed this result in an algorithm that, while computing the propagation caused by a shock, controls for the emergence of possible indeterminacies. We then apply some properties of network flows to investigate the relation between the structures of a financial network-i.e. the size and the pattern of obligations-and its exposure to default contagion.
This paper points out a methodological lacuna in the recent stream of numerical analyses of conta... more This paper points out a methodological lacuna in the recent stream of numerical analyses of contagion in financial networks, and presents a solution to amend it. Under some conditions, the intercyclical obligations that connect the agents in a financial network cause the indeterminacy of the vector of payments that clears such obligations. This problem, first pointed out by Eisenberg and Noe (Manage Sci 47:236–249, 2001), has received little or no attention by authors who investigate payment flows and domino effects in networks using numerical simulations. Here we present an original result that establishes necessary and sufficient conditions for the uniqueness of the clearing payment vector for any financial network, and we demonstrate this result to control for the occurrence of the above-mentioned indeterminacy while performing numerical exercises on financial networks.
Entrepreneurs play an important role in free market economies. Their quest for profits is a drivi... more Entrepreneurs play an important role in free market economies. Their quest for profits is a driving force for the creation, organization and man-agement of firms, for the achievement of efficient allocations of resources, for the discovery and exploitation of innovations and as a ...
This article characterizes the interbank deposit network as a flow network that is able to channe... more This article characterizes the interbank deposit network as a flow network that is able to channel liquidity flows among banks. These flows are beneficial, allowing banks to cope with liquidity risk. First, we analyze the efficiency of three network structures: star-shaped, complete, and incomplete in transferring liquidity among banks. The star-shaped interbank network achieves the complete coverage of liquidity risk with the smallest amount of interbank deposits held by each bank. This result implies that the star-shaped network is most resilient to systemic risk. Second, we analyze the banks' decentralized interbank deposit decisions for a given network structure. We show that all network structures can generate an inefficiently low amount of interbank deposits. However, the star-shaped network induces banks to hold an amount of interbank deposits that is the closest to the efficient level. These results provide a rationale for consistent empirical evidence on sparse and centralized interbank networks.
International journal of economics and finance, Oct 18, 2010
In this paper we compare the effects of two accounting rules, the mark-to-market and the historic... more In this paper we compare the effects of two accounting rules, the mark-to-market and the historical cost regimes, on the dynamics of direct, balance sheet contagion in financial networks. This is done using a flow-network representation of a financial system and of the propagation of losses that crosses it as a consequence of a negative shock. We show that, for any network and any shock, the flow of losses generated with the mark-to-market rule is larger than the one generated by accounting at historical cost. This implies that a financial network is more exposed to default contagion, both in terms of scope and threshold of contagion, under the marking-to-market accounting regime, than with the historical cost regime.
Journal of Economic Dynamics and Control, Jun 1, 2019
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.
Abstract In this paper we analyse the dynamics of flows of losses and of flows of liquidity in fi... more Abstract In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financial networks, using an approach based on the theory of flow networks. To this end, we represent financial networks as flow networks, ie, directed and weighted graphs endowed with ...
This paper puts forward a comparison of the performance of sparsely and densely connected social ... more This paper puts forward a comparison of the performance of sparsely and densely connected social networks in promoting the diffusion of innovations of uncertain profitability. To this end, we use a threshold model of innovation diffusion, based on a classic model of adoption of innovations via imitation by Jensen (Int. J. Ind. Organ. 6:335-350, 1988), to evaluate the probability of diffusion of an innovation in three classes of networks: the circular, the star-shaped and the complete networks. We find that, if agents hold a low prior confidence in the profitability of an innovation, then complete networks and star networks with informed agents (i.e., with agents who are aware of the structure of the network and use this information rationally) perform better than circles and than stars with myopic agents. The converse is true for innovations accompanied by initial high expectations about their profitability.
In this paper the economies of scale arising from the acquisition of costly information and their... more In this paper the economies of scale arising from the acquisition of costly information and their implications for the existence of a competitive equilibrium are investigated. As is known, the existence of economies in the scale of production undermines the possibility of a competitive equilibrium. This paper demonstrates that this kind of problem arises when ®rms face market uncertainty, i.e. in competitive markets, uncertainty about the price of production factors or about the price of output. It is shown that, under these circumstances, ®rms have incentives to purchase market information, i.e. information capable of reducing price uncertainty. In turn, the acquisition of costly information generates economies of scale that prevent the occurrence of a competitive equilibrium, unless such increasing returns to scale are tamed by the decreasing utility of uncertain returns due to risk aversion, orÐin the short runÐby increasing marginal costs of production. Ã I wish to thank Kenneth Arrow, Piero La Mura and Giovanni Maggi for long discussions and good advice. I am grateful to Tito Pietra and to an anonymous referee for their helpful comments. I am also grateful to the participants of the seminars that I held at Stanford (Department of Economics) and Naples (CNR South). Of course, any mistakes that can be found in this paper are solely my responsibility. Financial support by the Consiglio Nazionale delle Ricerche is gratefully acknowledged. I wrote this paper while visiting the
This textbook was first published in 2001 and has since enjoyed a certain success. It has been ap... more This textbook was first published in 2001 and has since enjoyed a certain success. It has been appraised by known scholars and it now appears in the reading list of many courses of industrial organization, information economics and network economics throughout the world. In my opinion there are two main reasons for this success: the choice of the topics covered in the book and its methodological approach. Each chapter of the book is devoted to a ''network industry''. The definition of network industries is put forward in Chapter 1, the introduction of the book. The markets for network goods, according to Shy, are characterized by four sets of conditions: (i) standards, complementarity and compatibility-that generate markets for systems of goods rather than single goods; (ii) network externalities, either in consumers' preferences or in the production functions of firms; (iii) switching costs and consequent lock-in phenomena; and (iv) significant economies of scale. The existence of one or more of such conditions renders a market different form the standard Marshallian locus where aggregate demand and supply schedules, submitted by anonymous agents, find their clearing prices and quantities. In most cases, the study of a market for network goods requires the analysis of strategic interaction among agents. As a consequence, game theory is the language of choice in most of the economic literature devoted to the analysis of network industries. The author makes such a choice even more compelling and leaves out of his book the non game-theoretic contributions to the field of network economics, a part for very few unavoidable exceptions. The rationale is his ambition to create an advanced textbook that is virtually calculus free, in order to make it suitable for the use of students who do not have an adequate mathematical background. To this end, Shy has taken the trouble of writing ex-novo all the models that are presented in the book, in a coherent and-as much as possible-simple language which is accessible to any student that has been instructed about the topics of game
This paper presents a model of adoption and diffusion of innovations that concern the technology ... more This paper presents a model of adoption and diffusion of innovations that concern the technology of e-commerce. First, a model of optimal adoption of e-commerce innovation is presented. In this model web companies are assumed to behave in an imitative way: facing an ...
This contribution focuses on the methodology applied in papers that investigate the dynamics of c... more This contribution focuses on the methodology applied in papers that investigate the dynamics of contagion in financial networks using numerical simulations. In these papers, a propagation of losses and defaults in a financial system is modeled as a direct balance-sheet contagion (a.k.a. counterparty contagion), that is the direct transmission of losses from financially distressed debtors to their creditors. The researchers in this field perform their simulations with three different methods: (i) basic linear threshold algorithms, (ii) the graph-theoretic approach, where contagion is modeled as a propagation process in directed and weighted graphs, (iii) the lattice-theoretic approach, where contagion is modeled as a ‘fictitious default algorithm’, that computes the vector of payments that clears a net of financial obligations. Some of the results obtained by this stream of literature raised doubts about the assumptions used in such simulations. We discuss this issue and present some methodological recommendations that may improve the realism and the generality achievable in numerical investigations of financial contagion.
This paper studies the effects that connectivity and centralisation have on the response of inter... more This paper studies the effects that connectivity and centralisation have on the response of interbank networks to external shocks that generate phenomena of default contagion. We run numerical simulations of contagion processes on randomly generated networks, characterised by different degrees of density and centralisation. Our main findings show that the degree of robustness-yet-fragility of a network grows progressively with both its degree of density or centralisation, although at different paces. We also find that sparse and decentralised interbank networks are generally resilient to small shocks, contrary to what so far believed. The degree of robustness-yet-fragility of an interbank network determines its propensity to generate a too-many-to-fail problem. We argue that medium levels of density and high levels of centralisation prevent the emergence of a too-many-to-fail issue for small and medium shocks whilst drastically creating the problem in the case of large shocks. Finally, our results shed some light on the actual robustness-yet-fragility of the observed core-periphery national interbank networks, highlighting the existing risk of systemic crises.
This paper studies the effects that connectivity and centralisation have on the response of inter... more This paper studies the effects that connectivity and centralisation have on the response of interbank networks to external shocks that generate phenomena of default contagion. We run numerical simulations of contagion processes on randomly generated networks, characterised by different degrees of density and centralisation. Our main findings show that the degree of robustness-yet-fragility of a network grows progressively with both its degree of density or centralisation, although at different paces. We also find that sparse and decentralised interbank networks are generally resilient to small shocks, contrary to what so far believed. The degree of robustness-yet-fragility of an interbank network determines its propensity to generate a too-many-to-fail problem. We argue that medium levels of density and high levels of centralisation prevent the emergence of a too-many-to-fail issue for small and medium shocks whilst drastically creating the problem in the case of large shocks. Final...
In this paper we analyse the dynamics of ‡ows of losses and of ‡ows of liquidity in …nancial netw... more In this paper we analyse the dynamics of ‡ows of losses and of ‡ows of liquidity in …nancial networks, using an approach based on the theory of ‡ow networks. To this end, we represent …nancial networks as ‡ow networks, i.e., directed and weighted graphs endowed with source nodes and sink nodes. We then model the 'domino e¤ect', i.e., the di¤usion of losses and defaults along the links of the network, and the transfer of liquidity across interbank networks. JEL classi…cation: C63, G10, G33.
En In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financia... more En In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financial networks, using an approach based on the theory of flow networks. To this end, we represent financial networks as flow networks, i.e., directed and weighted graphs endowed with source nodes and sink nodes. We then model the 'domino', i.e., the diffusion of losses and defaults along the links of the network, and the transfer of liquidity across interbank networks. JEL classification: C63, G10, G33.
We study the administrative behaviour of a sample of Italian municipalities dismissed by the Gove... more We study the administrative behaviour of a sample of Italian municipalities dismissed by the Government because of mafia infiltrations, looking at their balance-sheet data. Using linear discriminant analysis and logistic regressions, we put forward two statistical indicators of the probability that a mafia infiltrated a city council. Our results characterize the administrative profile of infiltrated municipalities. We obtain non-obvious results concerning their i) high levels of arrears, both of tax collections and payments; ii) low levels of indebtness; and iii) low levels of capital expenditures, especially for public works.
In this paper we represent the entrepreneurs as individuals who use their private prior knowledge... more In this paper we represent the entrepreneurs as individuals who use their private prior knowledge to perform acts of inference required by decision making under conditions of uncertainty. The knowledge endowments of entrepreneurs, and the inferential activity that they perform, are modelled using the customary Bayesian approach of statistical decision theory. We apply this representation of prior knowledge to a problem of decision making under conditions of state uncertainty, namely, the choice of technology when the relative price of production factors is uncertain. The obtained results show how the expected production costs of a rm depend on the inferential skills of its decision maker. On the basis of such results, we model a market for entrepreneurial services, with the aim of assessing the market value of entrepreneurship. This is done assuming Bertrand competition and Cournot competition. In both cases, the set of the entrepreneurial inferential skills determines the size dis...
This paper puts forward a novel approach to the analysis of direct contagion in financial network... more This paper puts forward a novel approach to the analysis of direct contagion in financial networks. Financial systems are here represented as flow networks-i.e., directed and weighted graphs endowed with source nodes and sink nodes-and the propagation of losses and defaults, originated by an exogenous shock, is here represented as a flow that crosses such a network. In establishing existence and uniqueness of such a flow function, we address a know problem of indeterminacy that arise, in financial networks, from the intercyclicity of payments. Sufficient and necessary conditions for uniqueness are pinned down. We embed this result in an algorithm that, while computing the propagation caused by a shock, controls for the emergence of possible indeterminacies. We then apply some properties of network flows to investigate the relation between the structures of a financial network-i.e. the size and the pattern of obligations-and its exposure to default contagion.
This paper points out a methodological lacuna in the recent stream of numerical analyses of conta... more This paper points out a methodological lacuna in the recent stream of numerical analyses of contagion in financial networks, and presents a solution to amend it. Under some conditions, the intercyclical obligations that connect the agents in a financial network cause the indeterminacy of the vector of payments that clears such obligations. This problem, first pointed out by Eisenberg and Noe (Manage Sci 47:236–249, 2001), has received little or no attention by authors who investigate payment flows and domino effects in networks using numerical simulations. Here we present an original result that establishes necessary and sufficient conditions for the uniqueness of the clearing payment vector for any financial network, and we demonstrate this result to control for the occurrence of the above-mentioned indeterminacy while performing numerical exercises on financial networks.
Entrepreneurs play an important role in free market economies. Their quest for profits is a drivi... more Entrepreneurs play an important role in free market economies. Their quest for profits is a driving force for the creation, organization and man-agement of firms, for the achievement of efficient allocations of resources, for the discovery and exploitation of innovations and as a ...
This article characterizes the interbank deposit network as a flow network that is able to channe... more This article characterizes the interbank deposit network as a flow network that is able to channel liquidity flows among banks. These flows are beneficial, allowing banks to cope with liquidity risk. First, we analyze the efficiency of three network structures: star-shaped, complete, and incomplete in transferring liquidity among banks. The star-shaped interbank network achieves the complete coverage of liquidity risk with the smallest amount of interbank deposits held by each bank. This result implies that the star-shaped network is most resilient to systemic risk. Second, we analyze the banks' decentralized interbank deposit decisions for a given network structure. We show that all network structures can generate an inefficiently low amount of interbank deposits. However, the star-shaped network induces banks to hold an amount of interbank deposits that is the closest to the efficient level. These results provide a rationale for consistent empirical evidence on sparse and centralized interbank networks.
International journal of economics and finance, Oct 18, 2010
In this paper we compare the effects of two accounting rules, the mark-to-market and the historic... more In this paper we compare the effects of two accounting rules, the mark-to-market and the historical cost regimes, on the dynamics of direct, balance sheet contagion in financial networks. This is done using a flow-network representation of a financial system and of the propagation of losses that crosses it as a consequence of a negative shock. We show that, for any network and any shock, the flow of losses generated with the mark-to-market rule is larger than the one generated by accounting at historical cost. This implies that a financial network is more exposed to default contagion, both in terms of scope and threshold of contagion, under the marking-to-market accounting regime, than with the historical cost regime.
Journal of Economic Dynamics and Control, Jun 1, 2019
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.
Abstract In this paper we analyse the dynamics of flows of losses and of flows of liquidity in fi... more Abstract In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financial networks, using an approach based on the theory of flow networks. To this end, we represent financial networks as flow networks, ie, directed and weighted graphs endowed with ...
This paper puts forward a comparison of the performance of sparsely and densely connected social ... more This paper puts forward a comparison of the performance of sparsely and densely connected social networks in promoting the diffusion of innovations of uncertain profitability. To this end, we use a threshold model of innovation diffusion, based on a classic model of adoption of innovations via imitation by Jensen (Int. J. Ind. Organ. 6:335-350, 1988), to evaluate the probability of diffusion of an innovation in three classes of networks: the circular, the star-shaped and the complete networks. We find that, if agents hold a low prior confidence in the profitability of an innovation, then complete networks and star networks with informed agents (i.e., with agents who are aware of the structure of the network and use this information rationally) perform better than circles and than stars with myopic agents. The converse is true for innovations accompanied by initial high expectations about their profitability.
In this paper the economies of scale arising from the acquisition of costly information and their... more In this paper the economies of scale arising from the acquisition of costly information and their implications for the existence of a competitive equilibrium are investigated. As is known, the existence of economies in the scale of production undermines the possibility of a competitive equilibrium. This paper demonstrates that this kind of problem arises when ®rms face market uncertainty, i.e. in competitive markets, uncertainty about the price of production factors or about the price of output. It is shown that, under these circumstances, ®rms have incentives to purchase market information, i.e. information capable of reducing price uncertainty. In turn, the acquisition of costly information generates economies of scale that prevent the occurrence of a competitive equilibrium, unless such increasing returns to scale are tamed by the decreasing utility of uncertain returns due to risk aversion, orÐin the short runÐby increasing marginal costs of production. Ã I wish to thank Kenneth Arrow, Piero La Mura and Giovanni Maggi for long discussions and good advice. I am grateful to Tito Pietra and to an anonymous referee for their helpful comments. I am also grateful to the participants of the seminars that I held at Stanford (Department of Economics) and Naples (CNR South). Of course, any mistakes that can be found in this paper are solely my responsibility. Financial support by the Consiglio Nazionale delle Ricerche is gratefully acknowledged. I wrote this paper while visiting the
This textbook was first published in 2001 and has since enjoyed a certain success. It has been ap... more This textbook was first published in 2001 and has since enjoyed a certain success. It has been appraised by known scholars and it now appears in the reading list of many courses of industrial organization, information economics and network economics throughout the world. In my opinion there are two main reasons for this success: the choice of the topics covered in the book and its methodological approach. Each chapter of the book is devoted to a ''network industry''. The definition of network industries is put forward in Chapter 1, the introduction of the book. The markets for network goods, according to Shy, are characterized by four sets of conditions: (i) standards, complementarity and compatibility-that generate markets for systems of goods rather than single goods; (ii) network externalities, either in consumers' preferences or in the production functions of firms; (iii) switching costs and consequent lock-in phenomena; and (iv) significant economies of scale. The existence of one or more of such conditions renders a market different form the standard Marshallian locus where aggregate demand and supply schedules, submitted by anonymous agents, find their clearing prices and quantities. In most cases, the study of a market for network goods requires the analysis of strategic interaction among agents. As a consequence, game theory is the language of choice in most of the economic literature devoted to the analysis of network industries. The author makes such a choice even more compelling and leaves out of his book the non game-theoretic contributions to the field of network economics, a part for very few unavoidable exceptions. The rationale is his ambition to create an advanced textbook that is virtually calculus free, in order to make it suitable for the use of students who do not have an adequate mathematical background. To this end, Shy has taken the trouble of writing ex-novo all the models that are presented in the book, in a coherent and-as much as possible-simple language which is accessible to any student that has been instructed about the topics of game
This paper presents a model of adoption and diffusion of innovations that concern the technology ... more This paper presents a model of adoption and diffusion of innovations that concern the technology of e-commerce. First, a model of optimal adoption of e-commerce innovation is presented. In this model web companies are assumed to behave in an imitative way: facing an ...
This contribution focuses on the methodology applied in papers that investigate the dynamics of c... more This contribution focuses on the methodology applied in papers that investigate the dynamics of contagion in financial networks using numerical simulations. In these papers, a propagation of losses and defaults in a financial system is modeled as a direct balance-sheet contagion (a.k.a. counterparty contagion), that is the direct transmission of losses from financially distressed debtors to their creditors. The researchers in this field perform their simulations with three different methods: (i) basic linear threshold algorithms, (ii) the graph-theoretic approach, where contagion is modeled as a propagation process in directed and weighted graphs, (iii) the lattice-theoretic approach, where contagion is modeled as a ‘fictitious default algorithm’, that computes the vector of payments that clears a net of financial obligations. Some of the results obtained by this stream of literature raised doubts about the assumptions used in such simulations. We discuss this issue and present some methodological recommendations that may improve the realism and the generality achievable in numerical investigations of financial contagion.
This paper studies the effects that connectivity and centralisation have on the response of inter... more This paper studies the effects that connectivity and centralisation have on the response of interbank networks to external shocks that generate phenomena of default contagion. We run numerical simulations of contagion processes on randomly generated networks, characterised by different degrees of density and centralisation. Our main findings show that the degree of robustness-yet-fragility of a network grows progressively with both its degree of density or centralisation, although at different paces. We also find that sparse and decentralised interbank networks are generally resilient to small shocks, contrary to what so far believed. The degree of robustness-yet-fragility of an interbank network determines its propensity to generate a too-many-to-fail problem. We argue that medium levels of density and high levels of centralisation prevent the emergence of a too-many-to-fail issue for small and medium shocks whilst drastically creating the problem in the case of large shocks. Finally, our results shed some light on the actual robustness-yet-fragility of the observed core-periphery national interbank networks, highlighting the existing risk of systemic crises.
This paper studies the effects that connectivity and centralisation have on the response of inter... more This paper studies the effects that connectivity and centralisation have on the response of interbank networks to external shocks that generate phenomena of default contagion. We run numerical simulations of contagion processes on randomly generated networks, characterised by different degrees of density and centralisation. Our main findings show that the degree of robustness-yet-fragility of a network grows progressively with both its degree of density or centralisation, although at different paces. We also find that sparse and decentralised interbank networks are generally resilient to small shocks, contrary to what so far believed. The degree of robustness-yet-fragility of an interbank network determines its propensity to generate a too-many-to-fail problem. We argue that medium levels of density and high levels of centralisation prevent the emergence of a too-many-to-fail issue for small and medium shocks whilst drastically creating the problem in the case of large shocks. Final...
In this paper we analyse the dynamics of ‡ows of losses and of ‡ows of liquidity in …nancial netw... more In this paper we analyse the dynamics of ‡ows of losses and of ‡ows of liquidity in …nancial networks, using an approach based on the theory of ‡ow networks. To this end, we represent …nancial networks as ‡ow networks, i.e., directed and weighted graphs endowed with source nodes and sink nodes. We then model the 'domino e¤ect', i.e., the di¤usion of losses and defaults along the links of the network, and the transfer of liquidity across interbank networks. JEL classi…cation: C63, G10, G33.
En In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financia... more En In this paper we analyse the dynamics of flows of losses and of flows of liquidity in financial networks, using an approach based on the theory of flow networks. To this end, we represent financial networks as flow networks, i.e., directed and weighted graphs endowed with source nodes and sink nodes. We then model the 'domino', i.e., the diffusion of losses and defaults along the links of the network, and the transfer of liquidity across interbank networks. JEL classification: C63, G10, G33.
We study the administrative behaviour of a sample of Italian municipalities dismissed by the Gove... more We study the administrative behaviour of a sample of Italian municipalities dismissed by the Government because of mafia infiltrations, looking at their balance-sheet data. Using linear discriminant analysis and logistic regressions, we put forward two statistical indicators of the probability that a mafia infiltrated a city council. Our results characterize the administrative profile of infiltrated municipalities. We obtain non-obvious results concerning their i) high levels of arrears, both of tax collections and payments; ii) low levels of indebtness; and iii) low levels of capital expenditures, especially for public works.
In this paper we represent the entrepreneurs as individuals who use their private prior knowledge... more In this paper we represent the entrepreneurs as individuals who use their private prior knowledge to perform acts of inference required by decision making under conditions of uncertainty. The knowledge endowments of entrepreneurs, and the inferential activity that they perform, are modelled using the customary Bayesian approach of statistical decision theory. We apply this representation of prior knowledge to a problem of decision making under conditions of state uncertainty, namely, the choice of technology when the relative price of production factors is uncertain. The obtained results show how the expected production costs of a rm depend on the inferential skills of its decision maker. On the basis of such results, we model a market for entrepreneurial services, with the aim of assessing the market value of entrepreneurship. This is done assuming Bertrand competition and Cournot competition. In both cases, the set of the entrepreneurial inferential skills determines the size dis...
Uploads
Papers by Mario Eboli