Network Formation with Local Complements and Global Substitutes: The Case of R&D Networks

Michael Koenig, Chih-Sheng Hsieh and Xiaodong Liu

No 13161, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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. We provide a complete equilibrium characterization in the form of a Gibbs measure, and show that the model is 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 subsidies in R&D collaboration networks.

Keywords: Network formation; Peer effects; Technology spillovers; Key player; Mergers and acquisitions; Subsidies (search for similar items in EconPapers)
JEL-codes: C11 C63 C73 D83 L22 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-cdm, nep-com, nep-cse, nep-gth, nep-net and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://cepr.org/publications/DP13161 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Network formation with local complements and global substitutes: the case of R&D networks (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13161

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13161

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().