Networks as Emergent Structures from Bilateral Collaboration

In this paper we model the formation of innovation networks as they emerge from bilateral actions. The effectiveness of a bilateral collaboration is determined by cognitive, relational and structural embeddedness. Innovation results from the recombination of knowledge held by the partners to the collaboration, and the extent to which agents’ knowledge complement each others is an issue of cognitive embeddedness. Previous collaborations (relational embeddedness) increase the probability of a successful collaboration; as does information gained from common third parties (structural embeddedness). As a result of repeated alliance formation, a network emerges whose properties are studied, together with those of the process of knowledge creation. Two features are central to the innovation process: how agents pool their knowledge resources; and how agents derive information about potential partners. We focus on the interplay between these two dimensions, and find that they both matter. The networks that emerge are not random, but in certain parts of the parameter space have properties of small worlds. (JEL Classification: L14, Z13, O3 Keywords: Networks, Innovation, Network Formation, Knowledge)