The Efficiency and Stability of R&D Networks

We investigate the efficiency and stability of R&D networks in a model with network-dependent indirect spillovers. We show that the efficient network structure critically depends on the marginal cost of R&D collaborations. When the marginal cost is low, the complete graph is efficient, while high marginal costs imply that the efficient network is asymmetric and has a nested structure. Regarding the stability of network structures, we show the existence of both symmetric and asymmetric equilibria. The efficient network is stable for small industry size and small cost. In contrast, for large industry size, there is a wide region of cost in which the efficient network is not stable. This implies a divergence between efficiency and stability in large industries.