The Evolution of Economic Networks

The objective in this paper is to implement a parsimonious agent-based computational model of economic networks whereby agents make strategic decisions based upon profits and information generated through their immediate social network. In this model firms are represented by nodes and the links between each pair of them are the result of a mutually advantageous economic decision. Therefore, links are two-sided or undirected. The economic decision is based on two elements, namely: a myopic profit motive and local information channeled through collaborating firms. Here I endogenize the formation and deletion of links. And also the number of firms (nodes) in the network at each time by allowing firms (nodes) to enter and exit the market. Centrality measures are reported together with firms' profits. The evolution of the network yields higher connectivity and profits when the (positive) externality is high and the rule to exit the market more strict. The higher the network connectivity, the higher the overall profits of firms