Diffusion of Ideas and Network Linkages

Abstract

I study the diffusion of technology when the decision to search for productivity-enhancing technologies depends on the network of interactions between agents. Agents have the option to engage in costly learning from their first-degree connections. The more productive an agent's connections, the higher the gains from learning. Hence, the network affects the reservation productivity at which agents choose to learn and, therefore, affects aggregate productivity. I find that the denser the network, the higher total factor productivity and the lower inequality. However, there is no effect of the network on the share of agents that learn in equilibrium. Furthermore, I find that nodes that are central in terms of their closeness to other nodes tend to exert more learning effort and have a higher productivity.