Financial Transaction Networks to Describe and Model Economic Systems by Carolina Mattsson B.S. in Physics, Lehigh University B.A. in International Relations, Lehigh University A dissertation submitted to The Faculty of the College of Science of Northeastern University in partial fulfillment of the requirements for the degree of Doctor of Philosophy March 23, 2020 Dissertation directed by David Lazer University Distinguished Professor of Political Science and Computer and Information Sciences 1 Dedication To all those who have ever wondered where their money goes. 2 Acknowledgements For help navigating these ideas and putting them into words I thank everyone who's crossed paths with me in the past six years, especially those of you who made a habit of it. I would most like to acknowledge my collaborators and co-authors. It has been a joy to work with Brennan Klein on Chapter 5, and to discuss elements of earlier chapters with Geoff Canright. Chapters 3 and 4 owe much to an extensive and fruitful collaboration with Guy Stuart. Nor could this work have been done without the support and contributions of our co-authors Soren Heitmann and Shafique Jamal. For additional insight into mobile money operations, I thank Qiuyan Xu, Sinja Buri, John Irungu Ngahu, and Morne Van Der Westhuizen. In addition to my co-authors, thank you to my adivser (David Lazer), my committee (Silvia Prina, Christoph Riedl, Alessandro Vespignani, and Irena Vodenska), as well as Bilge Erten, Claudia Sahm, Leo Torres, Hyejin Youn, Vincent Zountenbier and others for key comments along the way. I'd also like to give a shout out to the JP Caffe Nero and Pimentel Market (especially Victoria, Alvin, and Juan) for space to think and inspiration. My dissertation, perhaps more than most, could not have come together without institutional courage and professional kindness. I would like to express sincere gratitude towards Northeastern University, Microfinance Opportunities, and the National Science Foundation for the freedom to pursue such wide-ranging research. Thank you for supporting Network Science and network scientists. The Graduate Research Fellowship Program (Grant No. 1451070), the INTERN Program, and NU Assistantships have my humble appreciation. In gaining access to data I also thank the Partnership for Financial Inclusion, the International Finance Corporation, Cignifi Inc., and Telenor Research; these companies have my respect for taking on publicity risk in order to pursue impactful science in the public interest. On a more personal level, I would like to thank a number of people at these companies for supporting me and my research efforts for many years before anything could come of it: Guy Stuart, Geoff Canright, Kenth Engø-Monsen, Soren Heitmann, Qiuyan Xu, and Sara 3 Wadia-Fascetti. While on the topic, thank you to David Lazer for supporting my ambitions since before I even applied and opening doors for me that I would never have known existed. Most of all, I appreciate your genuine curiosity towards my ideas and your trust in my capabilities as a researcher. My committee has my enduring appreciation, along with Claudia Sahm, for taking on the extra effort to review work somewhat outside your wheel-house. To Alessandro Vespignani and Christoph Riedl, in particular, thank you for challenging me on all the right points. To Irena Vodenska and Silvia Prina, thank you for being just as curious as I am about where this can go. To Claudia Sahm, thank you for appearing out of nowhere with insightful comments on writing style and a warm welcome into Economics. Thank you also to Tina Eliassi-Rad for your infectious energy and drive. Your all's vote of confidence will stay with me|thank you for telling me I deserve a PhD. Throughout this time my greatest source of support has come from the Network Science Institute and basically everyone in it. I thank David Lazer, Alessandro Vespignani, Mark Giannini, and surely others for conjuring into existence a Network Science PhD program in the first place. Thank you also for placing some of your faith in me for that first cohort. I am grateful for the years of solidarity from my fellow \musketeers" and the others students forging this path, especially Devin Gaffney, Dina Mistry, Lisa Friedland, Kaiyuan Sun, and Mike Foley. We've come a long way. The highlight of this adventure has been adding new friends with every passing year and I would like to say thank you for that to Soodi Milanlouei, Matt Simonson, Leo Torres, Jessica Davis, Syed Arefinul Haque, Brennan Klein, Ryan Gallagher, Chia-Hung Yang, Briony Swire Thompson, Stefan McCabe, Rezvan Sherkati, Janette Bricero, Mark Giannini, Sarah Shugars, Janina Br¨oker, Jason Radford, Ieke de Vries, Alice Patania, Jean-Gabriele Young, Stefan Wojcik, Navid Dianati, Phil Chodrow, Adam Abonde,˚ Paolo Barucca, James Stanfill, Xindi Wang, Hanyu Chwe, Harrison Hartle, Lucas Almeida, Charles Levine, Istv´anKov´acs,Pim Van der Hoorn, Stefano Balietti 4 Simone Grabner, Rutuja Uttarwar, Juniper Lovato, Nicole Samay, Ana Pastore y Piontti, Ronald Robertson, Munik Shrestha, Yanchen Liu, Zach Fulker, Ben Miller, Tim Sakharov, Joy Xu, Alice Schwarze, Marco Pangallo, Federico Battiston, Maksim Kitsak, etc. etc. etc. Finally, I would like to express love and gratitude to my family and friends- from-elsewhere. Thank you for your steadfast encouragement; I can be single-minded and lord knows each of you has heard the spiel countless times. Thank you to the folks at RIAC (especially Anab Egal) for a sense of purpose when I needed one, and to the folks at Dirty Water Saloon (especially Bucky Chappell, Sharon Ulery, and Bob Sweeney) for dance-y distraction at key moments. Thank you to Marianna Faria Quadros, Paola Furlanetto, Caroline Daniels, and Zoe Cooksey for making my time in Boston so pleasant. Thank you also to Will & Fatin Lind and (of course) to Mr. Darcy. Thank you to Kebra Ward. Thank you to Fruzsina Veress, Istv´anKov´acs,and R´eka Mizsei for hikes and other fun. Thank you to Simon Mattsson for the countless chairlift rides where no question is too big or too crazy. So much gratitude goes to old friends for sticking this out with me, especially Amanda Burroughs, Sachee Nahata, Cas Arroyo, Zz Riford, Kirsten Kaplan, Laura Worden, and Amanda Olsson. My most heartfelt thank you is reserved for Vincent Zoutenbier|thank you for bringing companionship, joy, and a whole other circle of lovely people into my life. To my grandparents, thank you for the drive to better the world through my work with deliberate kindness. And lastly, to my parents, thank you for passing on to me a love of science along with everything else you have given me. I cannot thank you enough. Please know that I do not speak for any of those listed, misspelled, or mistakenly omitted. Any fault you may find herein is entirely my own. 5 Abstract of Dissertation Financial transactions are the fundamental unit of economic activity, and we would like to be able to study how many millions of transactions come together to create economies as a whole. This dissertation develops the network science, computational tools, and economic theory that we need in order to get started. First, I delve into the basic bookkeeping practices that define financial transactions as such. This lets us describe financial transaction processes mathematically, and suggests a computational approach that would let us analyze transaction records from payment systems in light of this representation. Next, I use this approach to study the movement of e-money through a mobile money system in East Africa as a network of monetary flow. Sequential transaction motifs can isolate particular economic actions by users, and these different activities create networks with prominent hubs, random structure, geographic assortativity, and even suspicious-looking cliques. While the details are specific to this mobile money system, we would expect to see related structures within our economy as a whole from large corporations, peer-to-peer transfers, localized business, and opportunities for strategic coordination. If and when we get a chance to study transaction data from other payment systems, we can improve and extend our knowledge of money-flow networks to include the particular slice of economic activity that those systems support. Then, I quantify the circulation of money through this same mobile money system. My results show that the directionality of transactions would have us question whether our intuitions about social networks necessarily apply to economic networks. The importance of cycles in transaction networks helps illuminate the especially thorny challenges that payment system providers face in growing their operations. Given that these providers make up the payment infrastructure our economy relies on, this raises further questions about precisely how our monetary system operates. Finally, I consider how we might approach modeling economic systems as financial transaction processes. There is a simple set of assumptions, each backed by economic theory, that fit together neatly into an 6 alternative minimal model of a growing entrepreneurial economy. While very simple, this toy model nevertheless retains and lets us explore path-dependency, endogenous dynamics, and emerging inequality in economic systems. As a whole, the key insight from this dissertation is that financial transaction processes are something we can describe mathematically, study empirically, and seek to understand via modeling. We can indeed build up an understanding of how millions of transactions come together to create economies as a whole. The ingredients are all here, and our challenge going forward lies in aligning the efforts of interested researchers across considerable disciplinary divides. 7 Table of Contents Dedication..............................2 Acknowledgements.........................3 Abstract of Dissertation......................6 Table of Contents..........................8 List of Figures............................9 List of Tables............................ 14 Chapter 1 Introduction............................. 16 Chapter 2 Financial Transaction Processes.................