The Formation of Networks with Local Spillovers and Limited Observability

Michael Koenig ()
Additional contact information
Michael Koenig: Stanford University
Authors registered in the RePEc Author Service: Michael David König

No 11-004, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: In this paper I analyze the formation of networks in which each agent is assumed to possess some information of value to the other agents in the network. Agents derive payoff from having access to the information of others through communication or spillovers through the links between them. Linking decisions are based on network-dependent marginal payoff and a network independent noise capturing exogenous idiosyncratic effects. Moreover, agents have a limited observation radius when deciding to whom to form a link. I find that for small noise the observation radius does not matter and strongly centralized networks emerge. However, for large noise, a smaller observation radius generates networks with a larger degree variance. These networks can also be shown to have larger aggregate payoff. I then estimate the model using a network of coinventors, firm alliances and trade relationships between countries, and find that the model can closely reproduce the observed patterns. The estimates show that with increasing levels of aggregation, the observation radius is increasing, indicating economies of scale in which larger organizations are able to process greater amounts of information.

Keywords: diﬀusion; network formation; growing networks; limited observability (search for similar items in EconPapers)
JEL-codes: C63 D83 D85 L2 (search for similar items in EconPapers)
Date: 2012-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www-siepr.stanford.edu/repec/sip/11-004.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www-siepr.stanford.edu:80 (No such host is known. )

Related works:
Journal Article: The formation of networks with local spillovers and limited observability (2016)
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:sip:dpaper:11-004

Access Statistics for this paper

More papers in Discussion Papers from Stanford Institute for Economic Policy Research Contact information at EDIRC.
Bibliographic data for series maintained by Anne Shor ( this e-mail address is bad, please contact ).