Innovation and Strategic Network Formation
Krishna Dasaratha

TL;DR
This paper models how firms' choices between secrecy and openness affect innovation and network formation, revealing that equilibrium networks are at a critical point where increased interaction could significantly boost innovation and welfare.
Contribution
It introduces a model linking firm behavior, network formation, and innovation, highlighting the role of informational intermediaries in enhancing innovation at critical network thresholds.
Findings
Equilibrium networks are at a critical threshold between sparse and dense.
Higher interaction rates lead to greater innovation and welfare.
Informational intermediaries can effectively promote high-innovation equilibria.
Abstract
We study a model of innovation with a large number of firms that create new technologies by combining several discrete ideas. These ideas are created via private investment and spread between firms. Firms face a choice between secrecy, which protects existing intellectual property, and openness, which facilitates learning from others. Their decisions determine interaction rates between firms, and these interaction rates enter our model as link probabilities in a learning network. Higher interaction rates impose both positive and negative externalities, as there is more learning but also more competition. We show that the equilibrium learning network is at a critical threshold between sparse and dense networks. At equilibrium, the positive externality from interaction dominates: the innovation rate and welfare would be dramatically higher if the network were denser. So there are large…
Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.
