Investing in the creation of synergies: building socio-economic networks∗

Profiting from spillovers is one of the key reasons behind technological collaboration agreements, agglomeration and even social stratification. The aim of this paper is precisely to understand the interaction between productive effort and the creation of synergies. We model this interaction in a way that allows us to characterize how agents devote resources to both activities optimally. In turn, this permits a full-fledged welfare analysis of individual decisions and to derive unambiguous comparative statics. In spite of its parsimony that ensures tractability, the model retains enough richness to replicate a (relatively) broad range of empirical regularities displayed by social and economic networks, and is directly estimable to recover is structural parameters.