David Batten . John Casti Roland Thord (Eds.)

Networks inAction Communication, Economics and Human Knowledge

With 126 Figures

Springer-Verlag Berlin Heidelberg GmbH

Professor Dr. David Batten Institute for Futures Studies Box 591 S-10131 Stockholm/Sweden

Professor Dr. John Casti Santa Fe Institute 1399 Hyde Park Road Santa Fe NM 875011 USA

Dr. Roland Thord TemaplanAB Sveaviigen 90 S-113 59 Stockholm 1 Sweden

The front cover reproduction is painted by Olivier Herdies (Acrylic on canvas) and is titled "The Chaos ofTraffic".

ISBN 978-3-642-63376-8 ISBN 978-3-642-57843-4 (eBook)

DOI 10.1007/978-3-642-57843-4

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Jan Hjertsson, Chairman Summer University of Southern Stockholm Foundation

Preface

It is striking to notice that all the technological and economic environ­ments in which we work and make decisions have become dependent on net­works of various kinds. This applies not only to physical networks, such as those for travel and transportation, but also to networks for information and financial transactions. Dependence on networks arises in just about every sphere of human activity.

Realizing the multifarious nature of networks in everyday life, in 1990 the Summer University of Southern Stockholm arranged an international Sum­mer Course on Communication-Networks. This course has since been held annually, with the scientific program organized by an international group of professors-David F. Batten, John L. Casti, and Anders Karlqvist. They have assembled a world-renowned group of experts on the applications of commu­nication, economic, social, transportation, computer and political networks, together with network theorists. Over the years the Course has developed into a meeting place where knowledge concerning network analysis has been exchanged and refined.

The Summer University of Southern Stockholm has functioned as some­thing of an experimental laboratory in the ongoing efforts to enhance research and higher education in Southern Stockholm. New subjects and ideas are pre­sented at the courses, which serve to enhance collaboration among scholars, academics, and users all over the world. A successful example of such a col­laboration is the Course on Communication-Networks which over the years has attracted more than a hundred students and industrial researchers from fifteen countries in Scandinavia, Europe, Asia, Australia, and U.S.A. All of

vi Preface

fifteen countries in Scandinavia, Europe, Asia, Australia, and U.S.A. All of them came to Stockholm primarily because they recognize the growing im­portance of networks as complex systems, and their home institutions do not offer any systematic lectures on this topic.

The Networks Course was originally initiated jointly by the Summer University of Southern Stockholm Foundation and the County Council of Stockholm, the Swedish Aviation Administration, the Swedish National Road Administration, the Swedish Post, the Swedish State Railways, and Telia AB. They have all served as joint sponsors and hosts for the Course. In the year 1993 the Course also was sponsored by the Swedish Transport and Communications Research Board. All these organizations have supported the publication of a series of key lectures from the Course, to be released as a single volume entitled Networks in Action.

It is the ambition of the Foundation to create continuity in its activities for the future. The board has proposed to its principals to take a decision in this direction. It is my expectation that this will be the case for the Networks Course from 1995. This book will then serve as a basic reference for use in an era when the topic of Communication-Networks will be included on a permanent basis in the Summer University's agenda.

The central theme of the book is one that has occupied academics as well as practical men and women for years, and is likely to continue to do so for many more years to come. Consequently the primary audience for Networks in Action is the community of practitioners and students who deal with network questions on a day-to-day basis. It is my anticipation that Networks in Action will fill a gap in the literature by providing a textbook that may well find a home in special courses in universities around the world. I am also convinced that the book can serve as a self-study volume for introducing practitioners and students to the ins and outs of network behavior.

As well as thanking the scientific coordinators and each of the above­mentioned organizations for their support and cooperation, I wish to thank each of the contributing authors for their excellent work-both during the courses and in preparing this book. I also want to thank TEMAPLAN AB and Dr. Roland Thord for coordinating it all in such a skilful way, making the course a great success. Special gratitude is also directed to the Swedish Institute for supporting students from Eastern Europe to take part in the Course and to the Department for Regional and Traffic Planning at the Royal Institute of Technology in Stockholm for permitting enrolees to take the Course on an examination basis for doctoral-degree credit. Finally I want to thank Professors David F. Batten and John L. Casti and Dr. Roland Thord for their joint efforts as editors of the book.

David F. Batten, * John L. Casti, ** and Roland Thordt * Institute for Future Studies, Drottninggatan 33, S-11151, Stockholm, SWEDEN **Technical University of Vienna, A-1040 Vienna, AUSTRIA and Santa·Fe Institute, 1399 Hyde Park Raod, Santa Fe, NM 87501, USA tTemaplan AS, Sveavagen 90, S-11359 Stockholm, SWEDEN

Introduction

Networks arise in every sphere of human activity. From a simple electrical circuit to a complex traffic grid, or from the swiftness of electronic transfers to the intricacies of the human brain, networks of various kinds pervade almost every aspect of everyday life. Transportation and communication networks enable us to meet, exchange experiences, and transfer information, knowl­edge, and culture. Goods can be transported and services delivered. Without networks, there are no markets. The production of services presupposes con­tact between supplier and customer. Networks are the prerequisite.

Tangible networks facilitate intangible ones. Furthermore, the extent to which we utilize these networks-networking in its various forms-is growing at a remarkably rapid pace.

Knowledge of networks importance to economic, technical, social, and cultural development has grown rapidly. Research and application have never been as intense as they are right now. The next advances can be expected in holistic and integrated simulations, with priority accorded reduction of energy expenditure, mastering crowding effects, and enhancing the environment, life quality, productivity, and safety.

What makes a collection of objects a system rather than just a collection of "things," is that they are connected in some interesting and important ways. In other words, they form a network. In its simplest form, a network may be thought of as a configuration of nodes and links; that is, a system in which some elements are connected to other elements in a systematic way.

viii D. F. Batten, J. L. Casti, and R. Thord

The focus of this book is to present some of the latest concepts and results from a group of experts on network theory and applications. Since the summer of 1990, its various scholars have assembled at the Summer University of Southern Stockholm and created a meeting place where knowledge has been exchanged and improved. Networks in Action represents the distilled essence of these meetings. The book gives the reader an insight into some theoretical issues underlying the "care and feeding" of networks, on the other hand also a penetrating presentation of ways these theoretical and computational procedures are implemented in real-world network problem.

NETWORKS THEORY John L. Casti opens up the book by giving a few examples of network and transforming them into mathematically representations as graphs. This is demonstrated by using examples of organizational network, ecological net­work, and air transport network. What those networks have in common are a set of objects tied together in a connective structure by links. From this point of view a network can abstractly be regarded as nothing more or less than a system. In this opening chapter the reader is taken for an journey through some of the fundamentals in describing and analyzing networks. From the example with the habit that the residents of Koningsberg had in the 1700s to stroll over the seven bridges of the town we learn about the difference between Eulerian circuits and Hamilton circuits. Also discussed are the problem areas of network flows, optimal routing, and stability. All representative of some of the ways that theory of networks can be used to address issues of everyday concern.

Jeffrey Johnson develops the thesis that the language of graph and net­work theory corresponds to some of the most fundamental concepts used in human thought. He argues that these concepts are used intuitively by people trying to solve complex problems which involve many relationships between many things. Mathematics enables the intuitive metaphors of links and ar­rows to be extended in a rigorous way, and allow natural representations of complex systems. He concludes that this mathematics has great potential for those trying to solve ever more complex problems in the physical and social worlds.

In his second contribution, Jeffrey Johnson presents a methodology that provides means of analyzing and understanding· the dynamic behavior of sys­tems of all degrees of complexity. Conventional methods of analyzing complex systems fail because they implicitly or explicitly assume the independence of subsystems, when further observation or experiment would make this unten­able. The approach suggested in this chapter is made up of relatively simple

Introduction ix

components. Although simple to state and understand, all of these compo­nents require dedicated and painstaking work in order to gain insight into any particular complex system.

Anders Karlqvist discusses network theory from the perspective of change and complexity. In real-world problems, time enters into the picture and dynamics becomes an important aspect. A fully developed network theory should be a dynamic theory, which takes into account the spatial and struc­tural relations in a temporal, dynamic perspective. By dint of examples, he demonstrates how powerful the combination of network and dynamic anal­ysis can be in generating insights into social and natural processes. He alsp argues that complexity theory based on nonlinear analysis of systems inter­acting with their environment opens up the border landscape between order and chaos. Thus it brings the reader to the frontier lines of dynamic systems analysis.

COMMUNICATION AND HUMAN KNOWLEDGE Communication is a basic human need and networks provide the means for communication. Thus the importance of networks can partly be gauged by the strength of our desire to communicate with each other. This fundamen­tal interdependency will be explored in this collection of chapters. Topics for discussion are the mushrooming demand for communication (and hence networks), the person-machine interface and recent models of knowledge ex­change networks. Many of the human networks of today are complex and invisible because of their relational nature. Thus the emphasis in this section will be on communication as a relation-intensifying learning process.

William Rouse introduces a framework for considering the elements of human-machine interaction. His presentation provides a basis for training operators, maintainers and managers of complex systems. He uses examples from helicopter maintenance, aircraft piloting and process control operators, and team-training simulators for enhancing ship crew communications and coordination. It is important to note how the nature of network representation changes for each of the applications. The conclusion is that it is important to think in terms of a range of network models, which can be modified and integrated as necessary.

Kiyoshi Kobayashi underlines the importance of understanding how knowledge-based inputs interact with conventional inputs in the production process, and how knowledge is exchanged and enhanced. In his contribu­tion two analytical frameworks are presented to relate market structure to knowledge accessibility. A model is proposed to investigate the impact of knowledge spillover on market structure of a nodal economy. The model is extended by explicitly introducing network dimensions to analyze the rela­tionship between the nodal division of production and knowledge accessibility

X D. F. Batten, J. L. Casti, and R. Thord

across the network. Knowledge expands and is enhanced by way of exchange processes across a network which consist of R&D nodes and transportation and telecommunication links in space.

In the contribution written by Martin Beckmann, knowledge networks encompass the institutions and activities that refer to the production and distribution of scientific knowledge. This discussion concentrates on the aca­demic side of knowledge handling. Beckmann argues that the scientist is an economic agent who naturally seeks to maximize utility, which means to maximize the scientific output. Different types of scientific collaboration are analyzed and evaluated from this perspective.

Rico Maggi analyzes the market for video conferences. Here made from a firm's perspective and experiences from Switzerland. Videoconferences have been presented as a viable alternative to business travel. But empirical evi­dence for a rising market share of this medium is hard to find. The explanation to this are on the cost side, and linked to self-dialing possibilities, and re­lated to problem of network externalities. The pioneers will create enormous externalities to those who will join the network later when it is already large.

INFRASTRUCTURE NETWORKS Infrastructure facilitates communication. The evolution of transport and communications infrastructure is, to a large extent, the story of humankind's historical progress. Thus it is imperative to understand the key role of trans­port and communications infrastructure in today's society. Topics for dis­cussion in this section include: evolutionary trends in infrastructure modes, substitution effects, newer technologies, and infrastructure for sustainable de­velopment. Special attention is also paid to networks in the ever increasing integration of Europe.

Nebojsa Nakicenovic provides an overview of the history of overland transportation networks and future prospects. The basic technologies for overland transportation are symbolized by their infrastructures: canals, rail­ways, roads, and airways. They integrate spatially distinct locations into mutually interrelated entities and are structured as networks. Nodes are dif­ferent locations with interaction potential, such as urban and industrial cen­ters. Links are individual transport infrastructures such as canals, railways, and roads and the related modes e.g., ships, trains, and automobiles. In time, they gradually replace one another; old systems are substituted by the new ones. It starts with an early development phase marked with a high degree of experimentation, develops through a phase of growth characterized by stan­dardization and pervasive diffusion, and eventually enters the last phase of saturation where the technical and economi~ potentials and further growth prospects are exhausted. This leads to a structural change and transition

Introduction xi

to the next generation of transport systems, such as high-speed trains and Maglev.

Concerning the development in Europe, it is argued that any scenario of possible future development should reflect the incre~ing "gravitational pull" of the core, and therefore a further increase in the gradient to the periphery. Such development would be very likely according to the gravity model of spatial interaction. Taking this analogy a step further from Newtonian physics to present day cosmology, a possible mass collapse of core and the effects of resulting shock waves on the periphery are discussed. A global analogue of this differentiated European development called "the Polycenter and the Periphery" is also discussed.

Peter Nijkamp and others discuss the strategic role of new infrastruc­ture networks in Europe after the implementation of the internal market. It is argued that Europe is moving toward an integrated network economy, in which network infrastructure will playa crucial role. Today we can witness an increasing interest in long-term strategic transport systems development. Various strategic evaluation criteria for such new European infrastructure are discussed. In particular attention is focused on the identification of criti­cal success factors for the implementation of new infrastructure networks in Europe.

In the chapter written by David F. Batten and Roland Thord the emerg­ing complexity and multifarious nature of networks is demonstrated. First, is argued that the revival of towns and cities in the Medieval period can be regarded as the emergence of a relatively simple network economy. Second, it is shown that the sparse physical networks of those Medieval days gradually evolved into faster, denser, and more direct communication links. Third, it is demonstrated that this evolutionary pattern exhibits key network attributes. The current preoccupation with speed is tending to widen the disparities be­tween the fastest group of travellers and those restricted to slower modes. Finally, attention is drawn to the profound importance of different speeds of adjustment in networks. It is the evolution of network structure itself which tends to control all other adjustments which are operating across the network at a faster pace.

ECONOMIC NETWORKS

In this section the main discussion is upon the interaction between different transportation and communication modes in relation to economic integration. With the possible exception of trade theory, classical economics has paid little attention to networks. Yet networks underpin virtually all key economic relationships. Producers strive to establish longlasting relationships with their suppliers to ensure continuity of inputs. They also strive to understand the needs of their customers, thereby developing links with those who purchase

xii D. F. Batten, J. L. Casti, and R. Thord

their products (consumers and other producers). Entrepreneurs also engage in networking to keep abreast of new technologies and opportunities. These complex relational networks provide the springboard for economic change. In this section, demand deepening and the dynamics of economic networks will be the focus of attention.

Ehud Zuscovitch and Moshe Justman analyze the fundamental drive be­hind economic networks formation over the last years and explore the impact of this tendency in the context of managing technical change and sustainable growth. The reason why there is such an increase in cooperation between firms over the last decade is strongly related to the gradual transformation of the industrial structure into what is termed an "Information Intensive Pro­duction System." Network organization is a new form of industrial structure that tackles the fundamental challenge of simultaneously increasing variety and efficiency; it is the key to sustainable differentiation. Among other things it is shown how networks can provide some answers to the viability prob­lem through risk sharing and credit mechanisms on one hand, and learning through interaction on the other hand.

In the contribution by Borje Johansson, some fundamental elements of an emerging theory of economic networks are outlined. A basic assumption is that a market economy is organized by means of different links and couplings between agents. Market competition is described as a process in which obso­lete, noncompetitive links are replaced by new and superior links. Couplings are restructured and actors enter and disappear. The presentation illustrates how one can construct models that incorporate some of the assumptions about economic networks. The dynamics of economic networks are strongly related to the innovation process in the economy.

Perhaps the most complex yet exciting aspect of networks centers on the many interdependencies between them. Synergies arise when different net­works can be utilized to advantage in combination. The car phone is an ele­gant example of networking synergy, but other examples abound. Hierarchical relationships also exist between networks at different levels of geographical or socioeconomic resolution. Recent approaches which focus on these inter­dependencies include synergetics and the general theory of self-organization.

In the final chapter of the book Ake E. Andersson is focusing upon the evolutionary aspects of networks in action and points out the combinatorial aspects and interactive effects between different networks, often known as synergetics. He demonstrates how synergetic decomposition can be applied in analyzing the dynamic evolution of economic networks. It is shown that long-term development of the economic system implies increasing edogeneity of trade and transportation. This implies increasing interdependencies and nonlinearities. Such nonlinearities can easily lead to non-predictability and non-controllability of trade and transportation flows, and of patterns of loca­tion of production. However, by synergetic decomposition of problem, ways out of chaos do sometimes exist.

Contents

Preface Jan Hjertsson V

Introduction John L. Casti, David F. Batten, and Roland Thord vii

Networks Theory 1

The Theory of Networks John L. Casti 3

Links, Arrows, and Networks: Fundamental Metaphors in Human Thought

Jeffrey Johnson 25

The Multidimensional Networks of Complex Systems Jeffrey Johnson 49

Network as Dynamic Systems Anders Karlqvist 81

Communication and Human Knowledge 107

Network Models of Human-Machine Interaction William B. Rouse

Knowledge Network and Market Structure: An Analytical Perspective

Kiyoshi Kobayashi

109

127

xiv Contents

Economic Models of Knowledge Networks Martin J. Beckmann

Videoconferencing: Economic Arguments on an Overrated Communication Network

159

Rico Maggi 175

Infrastructure Networks 193

Overland Transportation Networks: History of Development and Future Prospects

N ebosja N aki6enovi6 195

The Strategic Role of New Infrastructure Networks in Europe

Peter Nijkamp, Adriaan Perrels, and Leo Schippers 229

Europe's Hierarchical Network Economy David F. Batten and Roland Thord 251

Economic Networks 267

Networks, Sustainable Differentiation, and Economic Development

Ehud Zuscovitch and Moshe Justman 269

The Dynamics of Economic Networks Barje Johansson 287

Economic Network Synergetics Ake E. Andersson 309

Index 319

Contributors to this Volume 327

Theory without application is like the smile of the Cheshire cat; Application without theory is a cui-de sac.

RICHARD E. BELLMAN