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Three essays in Financial Networks and Games

Dike, Chukwudi Henry (2020) Three essays in Financial Networks and Games. Doctor of Philosophy (PhD) thesis, University of Kent,. (KAR id:85308)

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Abstract

Chapter 1: Default and Punishment with Systemic Risk: This essay identifies substituting behaviors in an ex-ante financial system with cyclical default/feedback leading to potential breakdown. Here, firms in a debt network estimate potential default and as such, makes storage decision in order to avoid defaulting. They make these decision due to the potential damages associated with defaults. In doing so, firms optimize their savings strategy given their network/neighborhood effect. We observe properties and existence of a Nash equilibrium under instances where such ex-ante breakdown are caused in part by each owing firm. Equilibrium storage is dominated by the fraction of default not attributed to contagion. We also see a link between firms position in a default network and its storage. As a policy tool, equilibrium under harsh punishment are also socially efficient in achieving minimal default and systemic breakdown.

Chapter 2: Frictions in Financial Networks: This essay models transaction cost within an Eisenberg and Noe (2001) clearing

Chapter 3: Strategic Interactions in Financial Networks: This essay models interactions of firms in a pre-trading(fixed network of lending/ borrowing) period whereby firms set fixed lending rates given loan management cost. We show strategic substitution in the rate each firm sets and more fundamentally, propose that the rates charged to debtors by a creditor firm is likened to results from a private provision of public good in networks game. We then highlight specific core-periphery network properties in relation to interdependence and Nash rate charged by firms. For welfare policies, we find neutrality of intervention policies that create or reduce transaction cost and improvement based on policies that provide administrative subsidies thus creating an avenue for cost effective resource transfer policy. Lastly, we find significant relationship between a firms centrality measured by weaker negative externality and welfare improvement due to such subsidy.

Item Type: Thesis (Doctor of Philosophy (PhD))
Thesis advisor: Allouch, Nizar
Thesis advisor: Duncan, Alfred
Thesis advisor: Bailey, Alastair
Uncontrolled keywords: Economics of Networks, Behavioural Finance, Games and Strategy.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
SWORD Depositor: System Moodle
Depositing User: System Moodle
Date Deposited: 04 Jan 2021 14:10 UTC
Last Modified: 01 Mar 2021 11:48 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/85308 (The current URI for this page, for reference purposes)
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