Working Paper BETA #2006-16

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Title : Knowledge flows and the geography of networks. A strategic model of small worlds formation

Author(s) : Nicolas Carayol, Pascale Roux

Abstract : This paper aims to demonstrate that the strategic approach of network formation can generate networks that share the main structural properties of most real social networks. We introduce a spatialized variation of the Connections model (Jackson and Wolinski, 1996) in which agents balance the benefits of forming links resulting from imperfect knowledge flows through bonds against their costs which increase with geographic distance. We show that, for intermediary levels of knowledge transferability, our time-inhomogeneous process selects networks which exhibit high clustering, short average distances and, when the costs of link formation are normally distributed across agents, skewed degree distributions.

Key-words : Strategic network formation ; Time-inhomogeneous process ; Knowledge flows ; Small worlds ; Monte Ca

JEL Classification : D85 ; C63 ; Z13