Identification of Preferences in Network Formation Games

48 Pages Posted: 14 Mar 2015

See all articles by Aureo de Paula

Aureo de Paula

University College London - Department of Economics; Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Seth Richards-Shubik

Lehigh University - Department of Economics; National Bureau of Economic Research (NBER)

Elie T. Tamer

Harvard University

Date Written: December 1, 2014

Abstract

Given data on a large network, this paper provides a framework for identification of preferences under the assumption of pairwise stability of network links. Network data present difficulties for identification, especially when one allows for links between nodes in a network to be interdependent; e.g., where friends of friends matter. Given a preference specification, we use the observed proportions of various possible payoff-relevant local network structures to learn about the underlying parameters. We show how one can map the observed proportions of these local structures to sets of parameters that are consistent with the model and the data. Our main result provides necessary conditions for a set of parameters to contain the identified set, under general specifications of preferences. We also provide sufficient conditions and hence a characterization of the identified set for two empirically relevant classes of specifications. The paper then provides a quadratic programming algorithm that can be used to construct the identified sets. This algorithm is illustrated in a set of Monte Carlo experiments.

Suggested Citation

de Paula, Aureo and Richards-Shubik, Seth and Tamer, Elie T., Identification of Preferences in Network Formation Games (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=2577410 or http://dx.doi.org/10.2139/ssrn.2577410

Aureo De Paula

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Seth Richards-Shubik (Contact Author)

Lehigh University - Department of Economics ( email )

620 Taylor Street
Bethlehem, PA 18015
United States

HOME PAGE: http://www.lehigh.edu/~ser315

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Elie T. Tamer

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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