Knowledge externalities and production in network: game equilibria, types of nodes, network formation

Abstract

We study game equilibria in a network, in each node of which an economy is described by a two-period model of endogenous growth with production and knowledge externalities. Each node obtains an externality produced by the sum of knowledge in neighbour nodes. Uniqueness of the inner equilibrium is proved. Ways of behaviour of agent (passive, active, or hyperactive) in dependence on received externalities are studied. Classification of networks based on a notion of type of node is provided. It is shown that the inner equilibrium depends not on the network's size or topology but on its structure in terms of the types of nodes, and in networks with similar types structure agents in nodes of the same type behave similarly. Changes of the equilibrium under changes in the network structure are studied, as well as network formation, in particular, connection of network components, and appearance of new links.