Waves and Cycles: Explorations in the Pure Theory of Price for Fine Art

This paper models price movements in the market for fine art. Consumers of art are assumed to value art for its own sake, but are also subject to externalities in consumption whereby the utility of consuming the work of a painter is affected by the consumption choices of other consumers of art. Painters are arranged in space, and positive externalities arise when the painter consumed is coming into fashion; negative externalities arise when the painter is going out of fashion. Because supply is fixed, popularity can be measured by price, so externality effects can be expressed through prices. Motion to the prices arises through the presence of some consumers who are fashion leaders, driving up the prices of coming artists. Rising prices indicate rising popularity, and the market moves towards these painters, shunning those who were previously popular. The paper makes reference to a companion paper by Peter Swann which is an empirical exploration of the same phenomenon. His paper suggests that painters can effectively be placed in a circular space, which makes the spatial assumptions of the analysis in the current paper reasonable. Results on trends in prices, and steady state prices under certain conditions are derived. The model is simulated numerically to illustrate some of the dynamics that arise.economics of technology ;

Network models of innovation and knowledge diffusion

Much of modern micro-economics is built from the starting point of the perfectly competitive market. In this model there are an infinite number of agents — buyers and sellers, none of whom has the power to influence the price by his actions. The good is well-defined, indeed it is perfectly standardized. And any interactions agents have is mediated by the market. That is, all transactions are anonymous, in the sense that the identities of buyer and seller are unimportant. Effectively, the seller sells “to the market” and the buyer buys “from the market”. This follows from the standardization of the good, and the fact that the market imposes a very strong discipline on prices. Implicit here is one (or both) of two assumptions. Either all agents are identical in every relevant respect, apart, possibly, from the prices they ask or offer; or every agent knows every relevant detail about every other agent. If the former, then obviously my only concern as a buyer is the prices asked by the population of sellers since in every other way they are identical. If the latter, then each seller has a unique good, and again what I am concerned with is the price of it. In either case, we see that prices capture all relevant information and are enough for every agent to make all the decisions he needs to make....economics of technology ;

Inertia, Interaction and Clustering in Demand

We present a discrete choice model of consumption that incorporates two empirically validated aspects of consumer behaviour: inertia in consumption and interaction among consumers. We specify the interaction structure as a regular lattice with consumers interacting only with immediate neighbours. We investigate the equilibrium behaviour of the resulting system and show analytically that for a large range of initial conditions clustering in economic behaviour emerges and persists indefinitely. Short-run behaviour of the model is investigated numerically. This exercise indicates that equilibrium properties of the system can predict a short-run behaviour of the model quite accurately.Clustering, Interaction, Habits, Consumer choice

Structural Holes, Innovation and the Distribution of Ideas

We model knowledge diffusion in a population of agents situated on a network, interacting only over direct ties. Some agents are by nature traders, others are by nature "givers": traders demand a quid pro quo for information transfer; givers do not. We are interested in efficiency of diffusion and explore the interplay between the structure of the population (proportion of traders), the network structure (clustering, path length and degree distribution), and the scarcity of knowledge. We find that at the global level, trading (as opposed to giving) reduces efficiency. At the individual level, highly connected agents do well when knowledge is scarce, agents in clustered neighbourhoods do well when it is abundant. The latter finding is connected to the debate on structural holes and social capital.Innovation, Diffusion of Innovations, Knowledge, Information, Networks

Information Technology and the Dynamics of Joint Innovation

We develop a model of an innovative industry to examine how information technology, by both enhancing matching efficiency and knowledge sharing, can have an ambiguous effect on the total amount of innovation. We consider a population of firms holding different knowledge expertise, and forming partnerships to conduct joint R&D. We assume that bringing together different expertise has positive value for innovating but also that joint innovation implies a partial convergence of the partners'' expertise. We study how the distribution of firms changes and thus how the innovative potential of the economy evolves. We show that as heterogeneity is used as an input by the innovative process, the industry must eventually collapse to a unique expertise, but how fast this takes place depends on the quality of IT. As a result of falling dispersion, a tension arises between static and dynamic efficiency. JEL Classification Numbers: C78,O33,O38.mathematical economics and econometrics ;

Word-of-mouth interaction and the organization of behaviour

We present a discrete choice model based on agent interaction. The framework combines the features of two well-known models of word-of-mouthcommunication (Ellison and Fudenberg, 1995 and Bala and Goyal, 2001).Interaction structure is a regular periodic lattice with decision-makers interacting only with immediate neighbours. We investigate the long-runequilibrium) behaviour of the resulting system and show that for a largerange of initial conditions clustering in economic behaviour emerges andpersists inde?nitely. The setup allows for the analysis of multi-option environments. For these environments we derive the distribution of optionpopularity in equilibrium.word-of-mouth, inertia, clustering, choice.

Social Sorting

This paper is about the behaviour of a society in which learning individuals play a Prisoner’s Dilemma that guides social promotion and demotion. The direct effect of the payoff-based socialization that is implemented here is segregation. However, segregation permits the survival of cooperation as it (unintendedly) preserves cooperators from detrimental interactions with defectors. Very large amounts of cooperation can be observed in the long run.microeconomics ;

Running The Marathon

Over the twentieth century universities in the industrialized world have evolved from being "universities of culture" to "universities of innovation." Policy makers and universities themselves see that one of their major roles is supporting industrial innovation and thus economic growth. We argue that this rests on a mis-cconception of the nature of innovation and the value of universities. We argue that a more appropriate function for this institution is as the "university of reflection" where scholarship and truth-seeking are the ultimate goals.innovation, university-industry relations, role of universities

Fits and Misfits: Technological Matching and R&D Networks

This paper presents an economic model of R&D network formation through the creation of strategic alliances. Firms are randomly endowed with knowledge elements. They base their alliance decisions purely on the technological fit of potential partners, ignoring social capital considerations and indirect benefits on the network. This is sufficient to generate equilibrium networks with the small world properties of observed alliance networks, namely short pairwise distances and local clustering. The equilibrium networks are more clustered than "comparable" random graphs, while they have similar characteristic path length. Two extreme regimes of competition are examined, to show that while the competition has a quantitative effect on the equilibrium networks (density is lower with competition), the small world features of the equilibrium networks are preserved.network formation, small worlds, R&D networks, strategic alliances, business clusters