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Network formation with local complements and global substitutes: the case of R&D networks


Hsieh, Chih-Sheng; König, Michael D; Liu, Xiaodong (2017). Network formation with local complements and global substitutes: the case of R&D networks. Working paper series / Department of Economics 217, University of Zurich.

Abstract

In this paper we introduce a stochastic network formation model where agents choose both actions and links. Neighbors in the network benefit from each other’s action levels through local complementarities and there exists a global interaction effect reflecting a strategic substitutability in actions. The tractability of the model allows us to provide a complete equilibrium characterization in the form of a Gibbs measure, and we show that the structural features of equilibrium networks are consistent with empirically observed networks. We then use our equilibrium characterization to show that the model can be conveniently estimated even for large networks. The policy relevance is demonstrated with examples of firm exit, mergers and acquisitions and subsidies in the context of R&D collaboration networks.

Abstract

In this paper we introduce a stochastic network formation model where agents choose both actions and links. Neighbors in the network benefit from each other’s action levels through local complementarities and there exists a global interaction effect reflecting a strategic substitutability in actions. The tractability of the model allows us to provide a complete equilibrium characterization in the form of a Gibbs measure, and we show that the structural features of equilibrium networks are consistent with empirically observed networks. We then use our equilibrium characterization to show that the model can be conveniently estimated even for large networks. The policy relevance is demonstrated with examples of firm exit, mergers and acquisitions and subsidies in the context of R&D collaboration networks.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C11, C15, C63, C73, D83, D85, L22
Uncontrolled Keywords:Network formation, peer effects, technology spillovers, key player, mergers and acquisitions, subsidies
Language:English
Date:February 2017
Deposited On:17 Feb 2016 15:43
Last Modified:15 Feb 2017 14:44
Series Name:Working paper series / Department of Economics
Number of Pages:44
ISSN:1664-7041
Additional Information:Revised version
Official URL:http://www.econ.uzh.ch/static/wp/econwp217.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers-new.php

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