Self-Organizing Innovation Networks: When do Small Worlds Emerge?

In this paper, we present a model of 'collective innovation' built upon the network formation formalism. In our model, agents localized on a circle benefit from knowledge flows from other agents with whom they are directly or indirectly connected. They support costs for direct connections which are linearly increasing with geographic distance. The dynamic process of network formation exhibits prefeRential meeting for close agents (in the relational network and in the geographic metrics). We show how the set of stochastically stable networks selected in the long run is affected by the degree of knowledge transferability. We find critical values of this parameter for which stable \"small world\" networks are dynamically selected.