Using Network Analysis in Economics and Management?
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Using
etwork Analysis in Economics and Management? Bryane Michael, Linacre College the same time in the USA, Continental Bank
It could be argued that corporate scandals in
went bust -sending the stock prices of
much of the world in the 1990s and 2000s have been caused by too close and cosy relationships between large corporations. When the president of a firm sits on the board of a major supplier and maintains friendly relations with his auditors (whom he hires as business consultants), it could be said that incentives are created to promote self-serving by the minor clique at the expense of the majority. According to the Corporate Library, such tight-knit relationships abound as il of the 15 largest companies in the US have at least two
its
borrowers downward (Cuiter and Summers,
1988). Why would borrowing firm stock prices
fall if firms can simply move to other banks? the relationship Relationships matter provided valuable information which allowed borrowers to get cheaper ioans. In the mid-1990s
in the Czech Republic, observers noted that
enterprises were not restructuring because banks and investment funds were not putting pressure on these companies (Stiglitz, 1999). Later studies indicated that the high degree of cross-hoidings
board members who sit together on another
between banks and insufficiently concentrated holding in firms gave little incentive to monitor
board and 20% of the 1,000 largest companies in the USA share at least one board member with another of the top 1,000 (Krantz, 2002).
closely. In the late I 990s, foreign investors started
to panic as the Thai baht fell - causing them to withdraw funds all across East Asia, and resulting in a rippling down into their banking
While business morality is often discussed in such
matters, it may be that the network of business relations and specifically the structure of relationships vitally determines behaviour.
sectors, the firms and destroying supplier networks (Barabasi, 2002).
What does the "structure of relationships"
mean? Taking the example above, if two people
are involved in a number of boards together, they might not be as critical or confrontational
with each other's proposals as when they do not have to deal with each other repeatedly. If one person is able to intermediate between different
groups, then the person may try to use this broker role for his own gain. If one thinks of social interactions between people as "links", then it is possible to draw a map of these links (see Figure 1). Such a map would portray the triicoir (nr ntwork nf rlcitnnsliins which rn be analysed.
If one's position in a network determines one's action, tools which measure such network structures can provide insights into a range of economic and business problems. Several examples spring to mind. In 1991, output fell significantly in Central and Eastern Europe due
Figure 1: A Social Network Source: http://www.byeday.net/sna/
to the disruption of supplier networks and
trading relationships (Blanchard, 1997). Around 19
In each of these ca
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