Ben Golub

Associate Professor, Department of Economics and the Department of Computer Science, Northwestern University

Economic Networks: Robustness and Interventions

December 7, 2022 - 12:00 PM Eastern Time

Location:

E100 Innovation Hall (viewing party)

Virtual Location:

Zoom

Talk Abstract:

We are in a golden age of core ideas from network theory being applied to make progress on major questions in economics. This talk will present two examples of this from my work, both concerning the incentives of firms in economic production. In the first paper I'll discuss, we model the production of complex goods in a large supply network, where specific relationships, or contracts, between firms are essential. A supply network is called fragile if aggregate output is very sensitive to small aggregate shocks. We model both the mechanics and the strategic forces that determine network robustness. By building a new interface between percolation theory and canonical models of economic production, we show that supply networks of intermediate productivity are fragile in equilibrium, even though this is always inefficient.

The second paper also focuses on a network of firms, but now the key interaction arises from how the demand for a firm's output is affected by other firms' choices: the firms sell goods that are either consumed together or are substitutes (competitors) for one another. The main questions are: how volatile are prices and measures of economic welfare to economic shocks (e.g., changes in commodity prices), and how should a planner intervene to improve the welfare a market delivers? Our main conceptual contribution is to use a certain the goods space, determined by the network of interactions among suppliers. It consists of principal components. By developing a new approach for using this principal component perspective to analyze the market, we can give new and sharp answers to both main questions . The results permit us to leverage the theory of spectral approximation (recently attracting a lot of interest in the statistical analysis of big data) to design optimal interventions even when the demand system is observed with a lot of noise.

Speaker Bio:

Ben Golub is an Associate Professor in the Department of Economics and the Department of Computer Science at Northwestern University. Ben's research focuses on social and economic networks, particularly in models of social learning, local public goods, peer effects, and the formation of social capital. A recurring theme is capturing aspects of networks through theory-based summary statistics that can be useful in empirical studies and policy analyses.