Formation of trade networks by economies of scale and product differentiation

Understanding the structure and formation of networks is a central topic in complexity science. Economic networks are formed by decisions of individual agents and thus not properly described by established random graph models. In this article, we establish a model for the emergence of trade networks that is based on rational decisions of individual agents. The model incorporates key drivers for the emergence of trade, comparative advantage and economic scale effects, but also the heterogeneity o...