Technology Category
Game Theory and Economic Paradigms: Cooperative Game TheoryMultiagent Systems: Mechanism DesignHumans and AI: Teamwork, Team formation
R&D Networks under Heterogeneous Firm Productivities
🤖 AI Summary
This paper addresses the asymmetric R&D spillovers arising from heterogeneous firm-level research productivity in R&D network formation. We develop an endogenous game-theoretic model that relaxes the conventional pairwise stability assumption. Theoretically, we prove that when productivity disparities across firms are large, the complete network becomes unstable and the positively assortative (PA) network emerges as the unique stable equilibrium. Moreover, an increase in average R&D productivity may reduce social welfare—yielding a welfare paradox. Numerical simulations and comparative statics reveal an inverted-U relationship between social welfare and the share of high-productivity firms. Our primary contribution lies in being the first to systematically characterize how productivity heterogeneity endogenously reshapes network architecture and invalidates the standard symmetry assumption on linkage benefits. The findings provide novel foundations for R&D policy design, emphasizing the need to jointly optimize alliance structures and firms’ effort incentives through feedback mechanisms.
Technology Category
Application Category
📝 Abstract
We introduce heterogeneous R&D productivities into an endogenous R&D network formation model, generalizing the framework in Goyal and Moraga-Gonzalez (2001). Heterogeneous productivities endogenously create asymmetric gains for connecting firms: the less productive firm benefits disproportionately, while the more productive firm exerts greater R&D effort and incurs higher costs. For sufficiently large productivity gaps between two firms, the more productive firm experiences reduced profits from being connected to the less productive one. This overturns the benchmark results on pairwise stable networks: for sufficiently large productivity gaps, the complete network becomes unstable, whereas the Positive Assortative (PA) network -- where firms cluster by productivity levels -- emerges as stable. Simulations show that the PA structure delivers higher welfare than the complete network; nevertheless, welfare under PA formation follows an inverted U-shape in the fraction of high-productivity firms, reflecting crowding-out effects at high fractions. Altogether, a counterintuitive finding emerges: economies with higher average R&D productivity may exhibit lower welfare through (i) the formation of alternative stable R&D network structures or (ii) a crowding-out effect of high-productivity firms. Our findings highlight that productivity-enhancing policies should account for their impact on endogenous R&D alliances and effort, as such endogenous responses may offset or even reverse the intended welfare gains.
Problem
Research questions and friction points this paper is trying to address.
Modeling R&D network formation with heterogeneous firm productivities and asymmetric gains.
Analyzing stability of networks like complete vs. positive assortative structures under productivity gaps.
Investigating welfare implications, including crowding-out effects and unintended outcomes of productivity policies.
Innovation
Methods, ideas, or system contributions that make the work stand out.
Introduces heterogeneous R&D productivities into network formation model
Shows complete networks become unstable with large productivity gaps
Reveals welfare follows inverted U-shape due to crowding-out effects
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