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Contribution to Book
The Co-evolution and Emergence of Integrated International Financial Networks and Social Networks: Theory, Analysis, and Computations
Globalization and Regional Economic Modeling (2006)
  • Anna Nagurney, University of Massachusetts - Amherst
  • Jose M Cruz
  • Tina Wakolbinger
Abstract

Globalization and technological advances, notably, in telecommunications networks and in the development of new financial instruments, have transformed the financial services landscape and their impacts have been studied empirically. In this paper, in contrast, we focus on the theoretical foundations of such transformations and we develop a rigorous dynamic supernetwork theory for the integration of social networks with international financial networks with intermediation in the presence of electronic transactions. We consider decision-makers with sources of funds, financial intermediaries, as well as demand markets for the various financial products who can be located in the same or in different countries. Through a multilevel supernetwork framework consisting of the international financial network with intermediation and the social network, we model the multicriteria decision-making behavior of the various decision-makers, which includes the maximization of net return, the maximization of relationship values, and the minimization of risk. Increasing relationship levels in our framework are assumed to reduce transaction costs, as well as risk and to have some additional value for the decision-makers. We explore the dynamic co-evolution of the financial flows, the associated financial product prices, as well as the relationship levels on the supernetwork until an equilibrium pattern is achieved. We provide some qualitative properties of the dynamic trajectories, under suitable assumptions, and propose a discrete-time algorithm which is then applied to track the co-evolution of the relationship levels over time, as well as the financial flows and prices. The equilibrium pattern yields, as a byproduct, the emergent structure of the social and international financial networks since it identifies not only which pairs of nodes will have flows but also the size of the flows, i.e., the relationship levels and the financial transactions.

Publication Date
2006
Editor
R. J. Cooper, K. P. Donaghy, and G. J. D. Hewings
Publisher
Springer
Citation Information
Anna Nagurney, Jose M Cruz and Tina Wakolbinger. "The Co-evolution and Emergence of Integrated International Financial Networks and Social Networks: Theory, Analysis, and Computations" Berlin, GermanyGlobalization and Regional Economic Modeling (2006)
Available at: http://works.bepress.com/anna_nagurney/27/