Endogenous Technology Spillovers in Dynamic R&D Networks

We introduce a stochastic R&D network formation model where firms choose both R&D efforts and their collaboration partners. Neighbors in the network benefit from each other’s effort levels through local technology spillovers, and there exists a global competition effect reflecting a strategic substitutability in efforts. We provide a complete equilibrium characterization in the form of a Gibbs measure, and show that the model is consistent with empirically observed R&D networks. We then use our equilibrium characterization to show that the model can be conveniently estimated even for large networks. The policy relevance is demonstrated with the analysis of subsidies to R&D collaboration costs.