http://repub.eur.nl/res/aut/965/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/28258/ 2008-12-01T00:00:00Z We develop a model of R&D collaboration in which individual firms carry out in-house research on core activities and undertake bilateral joint projects on non-core activities with other firms. We develop conditions on the profit functions of the firm under which R&D investments in different projects of a firm are complementary.We show that this condition is met by standard price and quantity setting oligopoly models. We then study the relation between the number of joint projects and investments and profits. In this context, we identify a second aspect of complementarity: Equilibrium investments in in-house as well as in each joint project are increasing in the number of projects. However, we find that an increase in number of joint projects of all firms lowers collective profits, suggesting the presence of excessive incentives for conducting research. http://repub.eur.nl/res/pub/7420/ 2006-01-10T00:00:00Z In this paper we test the celebrated `Strength of weak ties' theory of Granovetter (1973). We test two hypotheses on the network structure in a data set of collaborating economists. While we find support for the hypothesis of transitivity of strong ties, we reject the hypothesis that weak ties reduce distance more than strong ties do. We relate this surprising result to two different views of society. Whereas the classical view has been that society consists of different communities with strong ties within communities and weak ties between, the community of economic researchers has an interlinked star structure with strong ties between the stars. In such a world, strong ties are more important than weak ties. http://repub.eur.nl/res/pub/11216/ 2006-01-01T00:00:00Z We study the evolution of social distance among economists over the period 1970–2000. While the number of economists has more than doubled, the distance between them, which was already small, has declined significantly. The key to understanding the short average distances is the observation that economics is spanned by a collection of interlinked stars. A star is an economist who writes with many other economists, most of whom have few coauthors and generally do not write with each other. http://repub.eur.nl/res/pub/6696/ 2004-01-05T00:00:00Z This paper examines the small world hypothesis. The first part of the paper presents empirical evidence on the evolution of a particular world: the world of journal publishing economists during the period 1970-2000. We find that in the 1970's the world of economics was a collection of islands. Two decades later, in the 1990's the world of economics was much more integrated, with the largest island covering close to half of the population. At the same time, the distance between individuals on the largest island had fallen significantly. Thus we believe that economics is an emerging small world. An exploration of the micro aspects of the network yields three findings: one, the average number of co-authors is very small but increasing; two, the distribution of co-authors is very unequal; and three, there exist a number of `stars', individuals who have a large number of co-authors. Thus the economics world is a set of inter-connected stars. We take the view that individuals decide on whether to work alone or with others; this means that individual incentives should help us understand why the economics world has the structure it does. The second part of the paper develops a simple theoretical model of co-authorship. The main finding of the model is that in the presence of productivity differentials and a shortage of high productivity individuals, inter-connected stars will arise naturally in equilibrium. http://repub.eur.nl/res/pub/943/ 2003-08-07T00:00:00Z We develop a model of R&D competition and collaboration in which individual firms carry out independent in-house research and also undertake joint research projects with other firms. We examine the impact of collaboration on in-house research and explore the circumstances under which a hybrid organization of R&D which combines the two is optimal for firms and society. We find that investments in independent research and in joint research are complementary: an increase in the number of joint projects also increases in-house research. Firm profits are highest under a hybrid organization if the number of firms is small (less than 5) while they are highest with pure in-house research if the number of firms is large (5 or more). However, social welfare is maximized under a hybrid organization of R&D in all cases. Our analysis also yields new results on the role of cooperative R&D. We find that non-cooperative decision making by firms leads to larger R&D investments and higher social welfare than fully cooperative decision making. However, a hybrid form of decision making where there is bilateral cooperation in joint projects and non-cooperative decision making in in-house research yields the highest level of welfare in concentrated industries. http://repub.eur.nl/res/pub/6708/ 2003-06-05T00:00:00Z We develop a model of R&D competition and collaboration in which individual firms carry out independent in-house research and also undertake joint research projects with other firms. We examine the impact of collaboration on in-house research and explore the circumstances under which a hybrid organization of R&D which combines the two is optimal for firms and society. We find that investments in independent research and in joint research are complementary. Firm profits are highest under a hybrid organization if the number of firms is small; otherwise they are highest with pure in-house research. However, social welfare is maximized under a hybrid organization of R&D in all cases. Our analysis also yields new results on the role of cooperative R&D. Non-cooperative firm decision making leads to more R&D and higher social welfare than fully cooperative decision making. However, bilateral cooperation in joint projects and non-cooperative decision making in in-house research yields the highest level of welfare in concentrated industries. http://repub.eur.nl/res/pub/6803/ 2002-07-10T00:00:00Z This paper studies network formation in settings where players are heterogeneous with respect to benefits as well as the costs of forming links. Our results demonstrate that centrality, center-sponsorship and short network diameter are robust features of equilibrium networks. We find that in a society with many groups, where it is cheaper to connect within groups as compared to across groups, strategic play by individuals leads to a network architecture in which there is a core group which is entirely internally connected while all the other groups are entirely externally linked and hence completely fragmented. Since internal/within group links are cheaper to form, this implies that individual incentives may generate a significant waste of valuable social resources. http://repub.eur.nl/res/pub/6931/ 2000-11-10T00:00:00Z In many economic and social contexts, individual players choose their partners and also decide on a mode of behavior in interactions with these partners. This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by investing in costly pair-wise links. We show that individual efforts to balance the costs and benefits of links sharply restrict the range of stable interaction architectures; equilibrium networks are either complete or have the star architecture. Moreover, the process of network formation has powerful effects on individual behavior: if costs of forming links are low then players coordinate on the risk-dominant action, while if costs of forming links are high then they coordinate on the efficient action. http://repub.eur.nl/res/pub/6932/ 2000-11-10T00:00:00Z In an oligopoly, prior to competing in the market, firms have an opportunity to form pair-wise collaborative links with other firms. These pair-wise links involve a commitment of resources and lead to lower costs of production of the collaborating firms. The collection of pair-wise links defines a collaboration network. We study the architecture of strategically stable networks. Our analysis reveals that in a setting where firms are ex-ante identical, strategically stable networks are often asymmetric, with some firms having a large number of links while others have few links or no links at all. We characterize such asymmetric networks; the dominant group architecture, stars, and inter-linked stars are found to be stable. In asymmetric networks, the firms with many links have lower costs of production as compared to firms with few links. Thus collaboration links can have a major influence on the functioning of the market. http://repub.eur.nl/res/pub/6945/ 2000-09-14T00:00:00Z Many markets are characterized by a high level of inter-firm collaboration in R&D activity. This paper develops a simple model of strategic networks which captures two distinctive features of such collaboration activity: bilateral agreements and non-exclusive relationships. We study the effects of collaborations on individual R&D effort, cost reduction, and market performance. We then examine the incentives of firms to form collaborative links and the architecture of strategically stable networks. Our analysis highlights the interaction between market competition and R&D network structure. We find that if firms are Cournot competitors then individual R&D effort is declining in the level of collaborative activity. However, cost reduction and social welfare are maximized under an intermediate level of collaboration. In some cases, firms can gain market power, and even induce exit of rival firms, by forming suitable collaboration agreements. Moreover, under certain circumstances, such asymmetric collaboration networks are also strategically stable. By contrast, if firms operate in independent markets then individual R&D effort is increasing in the level of collaborative activity. Cost reduction and social welfare are maximized under the complete network, which is also strategically stable. http://repub.eur.nl/res/pub/1633/ 1999-12-31T00:00:00Z We examine the incentives of regions in a country to unite or to separate. We find that smaller regions have greater incentives to unite, relative to larger regions. We show, however, that on the whole, majority voting on separation and union generates excessive incentives to separate. This leads us to examine the scope of alternative political insititutions and rules in overcoming the potential inefficciency. Our paper also provides a wide range of examples to illustrate the different instituions used in actual practice to resolve such problems. http://repub.eur.nl/res/pub/7698/ 1999-12-23T00:00:00Z We examine the incentives of regions in a country to unite or to separate. We find that smaller regions have greater incentives to unite, relative to larger regions. We show, however, that on the whole, majority voting on separation and union generates excessive incentives to separate. This leads us to examine the scope of alternative political institutions and rules in overcoming the potential inefficiency. Our paper also provides a wide range of examples to illustrate the different institutions used in actual practice to resolve such problems. http://repub.eur.nl/res/pub/1625/ 1999-12-22T00:00:00Z In recent years, there has been a great deal of research on the relative merits of multilateralism and bilateralism and their implications for the nature of the trading regime between countries. In this paper we explore the scope of bilateral free-trade agreements as a foundation for free trade, using recent developments in the theory of strategic network formation. We study a setting with many contries; in each country there are firms, which can sell in the domestic market as well as sell in the foreign markets. The possibility of selling in foreign markets depends on the nature of import tariffs faced by firms. Countries can sign bilateral free-trade agreements which lower import tariffs and thereby facilitate trade. We allow a country to sign any number of bilateral trade agreements. A profile of trade agreements defines the trading regime. We study the nature of trading regimes that are consistent with the incentives of individual countries. Our principal finding is that bilateralism is consistent with global free trade. http://repub.eur.nl/res/pub/1599/ 1999-07-28T00:00:00Z We consider a non-cooperative model of information networks where communication is costly and not fully reliable. We examine the nature of Nash networks and efficient networks. http://repub.eur.nl/res/pub/1526/ 1998-12-03T00:00:00Z When there are competing technologies or products with unknown payoffs which are adopted over time within a society, an important question is whether conformism or diversity will prevail. We use a learning model with local interactions to study this question. We show that the structure of information flows within a society helps to determine whether conformism or diversity obtains. We find that if information is public then society conforms to a single technology in the long run. On the other hand, if society consists of smaller groups of individuals and interaction within groups is more intense as compared to interaction across the groups, then two technologies can coexist and diversity obtains, in the long run. Our analysis involves a novel application of the Law of the Iterated Logarithm. http://repub.eur.nl/res/pub/11659/ 1997-11-01T00:00:00Z We study the long run outcome when communities with different conventions interact. We introduce the notion of non-exclusive conventions to model the idea that, by incurring some additional costs, agents can remain flexible and hence coordinate their activities more successfully. We show that if these costs of flexibility are low (high) and interaction is local then the Pareto-efficient (risk-dominant) convention prevails in both communities. At intermediate cost levels, the conventions coexist. We also show that the importance of relative size of the two communities varies across interaction structures. http://repub.eur.nl/res/pub/1415/ 1997-01-01T00:00:00Z We develop a dynamic model to study the formation of communication networks. In this model, individuals periodically make decisions concerning the continuation of existing information links and the formation of new information links, with their cohorts. These decisions trade off the costs of forming and maintaining links against the potential rewards from doing so. We analyze the long run behavior of this process of link formation and dissolution. Our results establish that this process always self-organizes, i.e., irrespective of the number of agents, and the initial network, the dynamic process converges to a limit social communication network with probability one. Furthermore, we prove that the limiting network is invariably either a wheel network or the empty network. We show in the (corresponding) static network formation game that, while a variety of architectures can be sustained in equilibrium, the wheel is the unique efficient architecture for the interesting class of parameters. Thus, our results imply that the dynamics have strong equilibrium selection properties. http://repub.eur.nl/res/pub/11660/ 1996-01-01T00:00:00Z In this paper we examine the issue whether individual rationality considerations are sufficient to guarantee that individuals will learn to coordinate. This question is central in any discussion of whether social phenomena (read: conventions) can be explained in terms of a purely individualistic approach. We argue that the positive answers to this general question that have been obtained in some recent work require assumptions which incorporate some convention. This conclusion may be seen as supporting the viewpoint of institutional individualism in contrast to psychological individualism. http://repub.eur.nl/res/pub/11661/ 1995-01-01T00:00:00Z This paper examines the role of coordination devices such as work norms in creating and sustaining inefficient organizational practices in firms, in a dynamic environment. The role of signalling norms and product market competition in alleviating such inefficiencies is also examined. In particular, we show that Cournot competition may increase the inefficiency of organizational practices. http://repub.eur.nl/res/pub/1362/ 1995-01-01T00:00:00Z When payoffs from different actions are unknown, agents use their own past experience as well as the experience of their neighbors to guide their current decision making. This paper develops a general framework to study the relationship between the structure of information flows and the process of social learning. We show that in a connected society, local learning ensures that all agents obtain the same utility, in the long run. We develop conditions under which this utility is the maximal attainable, i.e. optimal actions are adopted. This analysis identifies a structural property of information structures -- local independence -- which greatly facilitates social learning. Our analysis also suggests that there exists a negative relationship between the degree of social integration and the likelihood of diversity. Simulations of the model generate spatial and temporal patterns of adoption that are consistent with empirical work. http://repub.eur.nl/res/pub/15226/ 1994-12-01T00:00:00Z I study a sequential process in which different pairs of traders bargain over the terms of trade of an indivisible good. I consider both one-sided and two-sided offers based bargaining at the stage-game level. The sequential process is modelled as an infinite stage-game of incomplete information and the paper studies the efficiency properties of its equilibria. It is shown: With one-sided offers, all equilibria are long-run ex post efficient; with two-sided offers, examples of equilibria are constructed with widely varying efficiency properties.