A Structural Model for the Coevolution of Networks and Behavior

40 Pages Posted: 20 Aug 2019

See all articles by Chih-Sheng Hsieh

Chih-Sheng Hsieh

The Chinese University of Hong Kong (CUHK)

Michael D. König

University of Amsterdam

Xiaodong Liu

University of Colorado at Boulder - Department of Economics

Date Written: August 2019

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

JEL Classification: C11, C31, C63, C73, L22

Suggested Citation

Hsieh, Chih-Sheng and König, Michael D. and Liu, Xiaodong, A Structural Model for the Coevolution of Networks and Behavior (August 2019). CEPR Discussion Paper No. DP13911. Available at SSRN: https://ssrn.com/abstract=3439465

Chih-Sheng Hsieh (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

HOME PAGE: http://https://sites.google.com/site/chihshenghsieh/

Michael D. König

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Xiaodong Liu

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

HOME PAGE: http://spot.colorado.edu/~xiaodong/

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