Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162420
Authors: 
Hsieh, Chih-sheng
König, Michael D.
Liu, Xiaodong
Year of Publication: 
2017
Series/Report no.: 
Working Paper Series, University of Zurich, Department of Economics 217
Abstract: 
In this paper 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. The tractability of the model allows us to provide a complete equilibrium characterization in the form of a Gibbs measure, and we show that the structural features of equilibrium networks are 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 acquisitions and subsidies in the context of R&D collaboration networks.
Subjects: 
Network formation
peer effects
technology spillovers
key player
mergers and acquisitions
subsidies
JEL: 
C11
C15
C63
C73
D83
D85
L22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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