The Role of Absorptive Capacity in R&D Cooperation: an Agent-based Model∗

This paper extends the model developed in Egbetokun and Savin (2012) by emphasising the dynamic aspects of partnership formation. Networks emerge as a result of bilateral cooperations over time between firms occupying different locations in the knowledge space. Cognitive distance between two firms reflecting both understandability and novelty aspects of their knowledge stocks changes as a function of the intensity of cooperation and innovation. We examine the role of absorptive capacity (which is itself influenced by cognitive distance and investment allocation between inventive and absorptive R&D) in the emergence and evolution of resulting networks. In doing so, we provide an agent-based model where network-based structural and strategic motives are ignored, and what matters is the decision of a firm on an optimal cognitive distance to a potential partner and its investment allocation under different extents of voluntary and involuntary spillovers. Considering results we focus on whether our model can replicate empirical results on network structure, contingent effects of network position on firms’ performance and firms cooperation strategy.