The economics of formal business networks

This paper analyzes the under-researched issue of formal business networks comprising voluntary groupings of entrepreneurs who share knowledge and experiences between themselves. Economic analysis is used to show how formal business networks which enable entrepreneurs to share good and bad practice can improve efficiency and social welfare. The paper also derives conditions for the existence and equilibrium size of formal business networks. Two principles of network design are proposed to promote their stability and to avoid their collapse. (C) 2008 Elsevier Inc. All rights reserved.