Trade with Technology Spillover: A Dynamic Network Game Analysis

This paper presents a general class of dynamic network games to analyze trade with technology spillover. Due to the fact that the benefits of technology spillover are not fully accrued to the technology developer, the positive externalities are under-exploited. The cooperative solution yields an optimal outcome. To reflect the contributions of individual agents to the network, the Shapley value is used as a solution optimality principle in sharing the cooperative gains. A time-consistent payoff imputation procedure is derived to maintain the Shapley value at each stage of the cooperation. A representative model based on the general class of network games with explicit functional form is given. This is the first time that trade with technology spillover is studied in the framework of dynamic network games, further studies along this line are expected.