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10 April 2006

Clusters and Bridges in Networks of Entrepreneurs

Post comments on "Clusters and Bridges in Networks of Entrepreneurs" in response to this posting. For reference please see his presentation and paper.

The abstract and seminar are based on a draft chapter for the forthcoming book, The Missing Links: Formation and Decay of Economic Networks.

In our model workers leave their former employers to become entrepreneurs, and found new firms by partnering with former colleagues or with workers who left a different employer. The first types of partnerships create clusters and the second types create bridges. Formation of bridge partnerships requires greater effort, and in equilibrium bridge partnerships yield greater profits on average than cluster partnerships. This pattern of network formation is shown to create community border effects in trade. It is also shown that less than the socially optimal amount of effort is devoted to formation of bridge partnerships. Policies to improve this situation are analyzed, including enforcement of restrictive employment contracts that affect the incentive to form cluster partnerships. Extensions of the model to two rounds of partnership formation and to two rounds of production generate additional effects of intra- and inter-firm networks on profits of individual entrepreneurs and on inter-community trade.

James Rauch is a professor economics at the University of California, San Diego. His areas of research include International Trade, Economic Growth and Development, Urban Economics and Labor. His most recent book is Leading Issues in Economic Development, 8th edition (with Gerald M. Meier), New York:Oxford University Press, 2005. He received his BA from Princeton University May and his Ph.D. in Economics from Yale University.

Posted by David Lazer at April 10, 2006 9:13 PM

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