A mathematical approach to network contagion regarding greening banks’ policies

Abstract

Green banking has become dominant in academics’ and practitioners’ discourse. The purpose of the research is to investigate whether banks’ attitudes, in deciding to go green, change under the influence of other banks through their mutual interaction and whether hysteresis plays a part in the process. A mathematical model, described by a differential system with time delay, considering three variables, i.e.: green, outsider and undecided banks, is used as a research method. We investigate the local stability of the two equilibrium points. Moreover, we look for the optimal control strategy targeting the undecided banks so that the outsiders’ group diminishes. The main contribution is that the paper sheds more light on the qualitative rather than on the quantitative side of the banking business given that banks’ behaviours are examined when it comes to implementing green policies. The research has policy implications since bank managers can decide whether to follow the greening trends of other banks and bank regulators can use the instrument for tracking the overall changes in banks’ behaviours in this respect.