Working Paper: NBER ID: w30585
Authors: Fanchin Kung; Ping Wang
Abstract: Observing the increasingly important roles played by the creation and transmission of information and tacit knowledge, we construct an information-network model incorporating both information transmitters and information aggregators. Given information-processing roles in aggregation or transmission, we establish various general properties concerning the existence of a network equilibrium, its optimality and the patterns of equilibrium and optimal configuration. We then allow for endogenous choice of the information-processing roles. We prove the existence and show that, with sufficiently small link maintenance costs, the monocentric network with one aggregator connecting to all other agents as transmitters on a tree graph is the unique configuration. In general, a rich array of equilibrium configurations may emerge, including core-star, star-with-satellites and cycles. We further characterize an information-processing chain network with all information aggregators and transmitters linked along a chain and compute numerically the ranges of transmission decays and link costs within which a network equilibrium arises.
Keywords: Information Networks; Knowledge Transmission; Network Equilibria; Information Aggregation
JEL Codes: C7; D20; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| link maintenance costs (R42) | monocentric network structure (D85) |
| endogenous choice of roles (D91) | overall network efficiency and structure (D85) |
| equilibrium network with endogenous roles (D85) | various configurations (Y91) |
| number of aggregators (C43) | cycles in equilibrium (C62) |
| specific conditions (C62) | emergence of beneficial network structures (D85) |