The Joint Dynamics of Networks and Knowledge

In this paper the evolution of networks is studied in an environment where innovation takes place as a result of agents bringing together their knowledge endowments. Agents freely form pairs that must constitute a stable matching in which the rankings are made on the basis of the innovative ability of any possible pair. Once innovation has taken place the new knowledge generated is allocated to the individuals as a function of their joint profile and the process is iterated. We study the properties of the dynamic network formed by these interactions, and the resultant knowledge dynamics. We find evidence that the substitution patterns between different types of knowledge and the details of the way partners pool their knowledge is of great importance in determining first the emergence of expertise of a certain type in the economy, and second the stability of a number of network structures.

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