Unpublished,

Network Formation in a Model of Distributed Innovation

, and .
(2003)working paper.

Abstract

This paper introduces a model or network formation in which agents benefit from knowledge flows emanating from other agents with whoom they are directly or indirectly connected. The agents are localized on a circle and the costs of direct communication increase with distance. After having studied pairwise stability and efficiency, we introduce a stochastic process of network formation with preferential meeting. We show how the structure of stochastically stable networks is affected by the degree of knowledge transferability. We find that, for a large region of this parameter value, the process selects small world-like networks which exhibit high local density and distant connections.

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