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A Structural Model for the Coevolution of Networks and Behavior

Chih-Sheng Hsieh (), Michael König and Xiaodong Liu

No 13911, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper introduces a structural model for the coevolution of networks and behavior. The microfoundation of our model is a network game where agents adjust actions and network links in a stochastic best-response dynamics with a utility function allowing for both strategic externalities and unobserved heterogeneity. We show the network game admits a potential function and the coevolution process converges to a unique stationary distribution characterized by a Gibbs measure. To bypass the evaluation of the intractable normalizing constant in the Gibbs measure, we adopt the Double Metropolis-Hastings algorithm to sample from the posterior distribution of the structural parameters. To illustrate the empirical relevance of our structural model, we apply it to study R&D investment and collaboration decisions in the chemicals and pharmaceutical industry and find a positive knowledge spillover effect. Finally, our structural model provides a tractable framework for a long-run key player analysis.

Keywords: Double Metropolis-Hastings algorithm; Key players; network interactions; R&D collaboration networks; stochastic best-response dynamics; strategic network formation; Unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C11 C31 C63 C73 L22 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cdm, nep-com, nep-cse, nep-gth, nep-ore and nep-upt
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