Structural Estimation of Pairwise Stable Networks with Nonnegative Externality

37 Pages Posted: 23 Oct 2012 Last revised: 2 Sep 2016

Date Written: September 1, 2016

Abstract

This paper develops a framework to structurally estimate pairwise stable networks with nonnegative externality. We characterize pairwise stable equilibria as a fixed point of a certain mapping and show that the set of pairwise stable equilibria with nonnegative externality is a complete lattice. We extend the characterization to an econometric framework for structural estimation based on the moment inequality model. We apply our methodology to friendship networks of students in the United States, using data from Add-Health. We find that the preference toward racial homophily is overestimated if we do not control for the preference toward clustering.

Keywords: Social Networks, Network Formation, Multiple Equilibria, Pairwise Stability, Lattice

JEL Classification: C13, C31, D85

Suggested Citation

Miyauchi, Yuhei, Structural Estimation of Pairwise Stable Networks with Nonnegative Externality (September 1, 2016). Journal of Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2165884 or http://dx.doi.org/10.2139/ssrn.2165884

Yuhei Miyauchi (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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