The Economics of Network Flows

Abstract

My research on the economics of network flows is motivated by (i) the possibility of bads being carried through networks, together with goods, (ii) the analysis of strategic behavior of agents in networks, and (iii) the experimental testing of theoretical predictions about strategic behavior. Chapter 2 examines a model with two adversarial players. One player can carry bads through a network while the other player can inspect the network to stop the transport of bads. In equilibrium each player chooses a mixed strategy. Chapter 3 analyzes a model with two non-adversarial players. One player can act to mitigate bads at a source while the other player can act to reduce bads through a network. If one player acts, both players benefit from the decrease in bads. Each player pays for the cost of action. Thus, players may try to free-ride on the other's action. Chapter 4 studies a simple model for empirical and experimental analysis. This model exhibits the power law of conflict, which is an empirical regularity that the frequency of conflict events, such as murders, insurgencies, and wars, scales as an inverse power of the severity of the events. The power law is a good fit to the Iraqi data in Global Terrorism Database.