Mathematical Economics II

COURSE OBJECTIVE
The past two decades have seen a growing public and scientific fascination about the complex “connectedness” of modern society and
markets. At the heart of this fascination is the idea of a network: the architecture of interconnections. This aspect permeates our social and
economic lives in countless ways. Social networks play a central role in the transmission of information, how we vote, how diseases spread, whether we become criminals, what products we buy, which education we choose, and it highly impacts the likelihood of succeeding professionally. Furthermore, agents build their business relationships and networks anticipating the outcomes that result from this interaction. Network aspects also explain why many economic environments of interest are dominated by a few agents, be individuals or firms. Think for example of scientists competing for publicizing their work, pharma firms engaging in R&D for the development of new drugs, or online travel agents trying to attract hotels and travelers to their websites. The choices of these interconnected agents have far-reaching effects not only on prices, quantities, and the direction of innovation, and may cause wide repercussions throughout the economy.

The course begins with an empirical background on social and economic networks, and an overview of the concepts used to describe and measure networks. Next, we cover a set of models about how networks form, including random network models, as well as strategic formation models, and some hybrid models. We then move to a discussion of a series of models of how networks impact behavior, including opinion formation, disease, contagion, diffusion, learning, and peer influences.

Next, keeping an eye on the current pressing problems in business and society, the course centers around strategic behavior in markets and networks, both from the business perspective as well as from the societal viewpoint. We will discuss competition in the presence of
network externalities, market power and abuse of dominant position, the formation of R&D collaboration alliances, the impact of cross-ownership on the intensity and the direction of innovation, information frictions in consumer and labor markets, consumer search, advertising models and search engine sponsored ad auctions.

This course fits in the VU profile themes ‘Governance for Society’, ‘Connected World’, and ‘Science for Sustainability’.

COURSE CONTENT
Part 1: Social and Economic Networks (Ines Lindner)

1. Representing and measuring networks
Applications: the architecture of social and economic networks, informal norm enforcement, social capital, Google page rank, citation network

2. Random Growing Networks
Applications: world wide web, small world phenomenon, romantic and sexual networks, collaboration networks

3. Strategic network formation
Applications: social media, collaboration networks, co-author networks

4. Diffusion on Networks
Applications: epidemics, health policies, diffusion of innovation, regulation of financial networks

5. Learning on Networks
Applications: opinion dynamics, belief formation, fake news, wisdom of crowd

6. Games on Networks
Applications: public goods, R&D networks

Part 2: Networks and Markets (José Luis Moraga Gonzalez)

1. Selling network goods
Applications: hardware and software markets, videogames, apps

2. Competition in markets for network goods
Applications: telephone networks, standards wars, public policy in network markets

3. Consumer search and advertising
Applications: price comparison sites (pricewise.nl), online travel agents (booking.com, expedia)

4. Search engines on the internet Intermediaries
Applications: price comparison sites (pricewise.nl), online travel agents (booking.com, expedia)

5. Business relations and the intensity and direction of innovation
Applications: investment funds, mergers

6. Auctions
Applications: eBay auctions, Google sponsored ads

TEACHING METHODS
Classes. During the class meetings, time will be made for discussing exercises.

This course uses a blended learning approach. That means that students are asked to prepare the classroom meetings by reading articles and/or watching clips. Students can earn a bonus point by successfully answering quiz questions in class.

TYPE OF ASSESSMENT
Intermediate exam – Individual assessment
Final exam – Individual assessment
Individual assignment - Individual assessment
Quizzes in classroom - Individual assessment