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Knowledge flows and the geography of networks. A strategic model of small worlds formation

  • Nicolas Carayol
  • Pascale Roux

This paper aims to demonstrate that the strategic approach of network formation can generate networks that share the main structural properties of most real social networks. We introduce a spatialized variation of the Connections model (Jackson and Wolinski, 1996) in which agents balance the benefits of forming links resulting from imperfect knowledge flows through bonds against their costs which increase with geographic distance. We show that, for intermediary levels of knowledge transferability, our time-inhomogeneous process selects networks which exhibit high clustering, short average distances and, when the costs of link formation are normally distributed across agents, skewed degree distributions.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2006-16.

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Date of creation: 2006
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Handle: RePEc:ulp:sbbeta:2006-16
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  1. Sanjeev Goyal & Marco van der Leij & Jose Luis Moraga, 2004. "Economics: An Emerging Small World?," Tinbergen Institute Discussion Papers 04-001/1, Tinbergen Institute.
  2. Goyal, S. & Joshi, S., 2000. "Networks of Collaboration in Oligopoly," Econometric Institute Research Papers EI 9952-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. Matthew O. Jackson & Brian W. Rogers, 2005. "The Economics of Small Worlds," Game Theory and Information 0503004, EconWPA.
  4. Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Econometric Society World Congress 2000 Contributed Papers 0623, Econometric Society.
  5. Nicolas Carayol & Pascale Roux, 2004. "Behavioral Foundations And Equilibrium Notions For Social Network Formation Processes," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 77-92.
  6. Jasjit Singh, 2005. "Collaborative Networks as Determinants of Knowledge Diffusion Patterns," Management Science, INFORMS, vol. 51(5), pages 756-770, May.
  7. Calvo-Armengol, Antoni, 2004. "Job contact networks," Journal of Economic Theory, Elsevier, vol. 115(1), pages 191-206, March.
  8. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. repec:adr:anecst:y:2005:i:79-80:p:08 is not listed on IDEAS
  10. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Cowan Robin & Jonard Nicolas, 2000. "The Dynamics of Collective Invention," Research Memorandum 018, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  12. Robles, Jack, 1998. "Evolution with Changing Mutation Rates," Journal of Economic Theory, Elsevier, vol. 79(2), pages 207-223, April.
  13. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  14. M. T. Gastner & M. E.J. Newman, 2006. "The spatial structure of networks," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 49(2), pages 247-252, 01.
  15. Deborah F. Minehart & Rachel E. Kranton, 2000. "original papers : Competition for goods in buyer-seller networks," Review of Economic Design, Springer, vol. 5(3), pages 301-331.
  16. Paul Almeida & Bruce Kogut, 1999. "Localization of Knowledge and the Mobility of Engineers in Regional Networks," Management Science, INFORMS, vol. 45(7), pages 905-917, July.
  17. Allen, Robert C., 1983. "Collective invention," Journal of Economic Behavior & Organization, Elsevier, vol. 4(1), pages 1-24, March.
  18. Galeotti, Andrea & Goyal, Sanjeev & Kamphorst, Jurjen, 2006. "Network formation with heterogeneous players," Games and Economic Behavior, Elsevier, vol. 54(2), pages 353-372, February.
  19. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  20. Robert P. Gilles & Cathleen Johnson, 2000. "original papers : Spatial social networks," Review of Economic Design, Springer, vol. 5(3), pages 273-299.
  21. Fernando Vega Redondo, 2002. "Building Up Social Capital In A Changing World," Working Papers. Serie AD 2002-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  22. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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