Formation of citation networks by rational players and the diffusion of ideas

We study models of the formation of citation networks in a setting where authors/firms care about their citations and are rational. The effect of these two features on the diffusion of useful ideas in a setting with complete information about past citations leads to multiplicity of equilibria. With field-specific norms, however, uniqueness obtains. Asymmetric information about quality and strategic entry gives equilibria in which players signal quality by timing of entry. Ex post effi ciency cannot be guaranteed, but ex ante effi ciency is sometimes attainable. Imperfect information about past research with information being obtained through acquaintances, yields a preferential attachment network. ∗Department of Economics, The Pennsylvania State University, University Park, Pa. 16802.. email: [email protected]. †Oxford Economic Research Associates, Oxford, UK, email:[email protected]. We would like to thank Paul David, Sanjeev Goyal, Anindya Sen and Arijit Sen for useful suggestions and Neil Wallace and Vijay Krishna for their valuable comments on an earlier draft.