{"ID":2824276,"CreatedAt":"2026-06-01T04:54:23.091178241Z","UpdatedAt":"2026-06-01T04:54:23.091178241Z","DeletedAt":null,"paper_url":"https://arxiv.org/abs/2512.23337","arxiv_id":"2512.23337","title":"The R\u0026D Productivity Puzzle: Innovation Networks with Heterogeneous Firms","abstract":"We introduce heterogeneous R\u0026D productivities into an endogenous R\u0026D network formation model, generalizing the framework of Goyal and Moraga-González (2001). Heterogeneous productivities endogenously create asymmetric gains from collaboration: less productive firms benefit disproportionately from links, while more productive firms exert greater R\u0026D effort and incur higher costs. When productivity gaps are sufficiently large, more productive firms experience lower profits from collaborating with less productive partners. As a result, the complete network -- stable under homogeneity -- becomes unstable, and the positive assortative (PA) network, in which firms cluster by R\u0026D productivity, emerges as pairwise stable. Using simulations, we show that the clustered structure delivers higher welfare than the complete network; nevertheless, welfare under this formation follows an inverted U-shape as the fraction of high-productivity firms increases, reflecting crowding-out effects at high fractions. Altogether, we uncover an R\u0026D productivity puzzle: economies with higher average R\u0026D productivity may exhibit lower welfare through (i) the formation of alternative stable networks, or (ii) a crowding-out effect of high-productivity firms. Our findings show that productivity gaps shape the organization of innovation by altering equilibrium R\u0026D alliances and effort. Productivity-enhancing policies must therefore account for these endogenous responses, as they may reverse intended welfare gains.","short_abstract":"We introduce heterogeneous R\u0026D productivities into an endogenous R\u0026D network formation model, generalizing the framework of Goyal and Moraga-González (2001). Heterogeneous productivities endogenously create asymmetric gains from collaboration: less productive firms benefit disproportionately from links, while more prod...","url_abs":"https://arxiv.org/abs/2512.23337","url_pdf":"https://arxiv.org/pdf/2512.23337v3","authors":"[\"M. Sadra Heydari\",\"Zafer Kanik\",\"Santiago Montoya-Blandón\"]","published":"2025-12-29T09:45:31Z","proceeding":"econ.GN","tasks":"[\"econ.GN\",\"cs.SI\"]","methods":"[\"Generative Adversarial Network\"]","has_code":false}