Structural Estimation of Pairwise Stable Networks: An Application to Social Networks in Rural India

35 Pages Posted: 8 May 2013 Last revised: 20 Mar 2018

See all articles by Jun Sung Kim

Jun Sung Kim

Monash University - Department of Econometrics & Business Statistics

Date Written: March 15, 2018

Abstract

This paper studies what can be learned from pairwise stable networks. I specify the marginal utility of a pair forming a link as a function of individual-level unobserved heterogeneity as well as pair level observed characteristics. I derive a tetrad-level utility inequality from pairwise stability, which substantially simplifies the complex model of strategic network formation. The individual-level unobserved heterogeneity is canceled out within the tetrad-level inequality, and utility parameters are point identified. I propose a maximum score type estimator that is consistent when the number of networks goes to infinity, and its finite sample performance is investigated with Monte Carlo experiments. I apply the estimation method to social networks in rural India and find evidence of homophily in caste, gender, and education.

Keywords: Pairwise stable network, Network formation; Inequality-based model; Maximum score estimator; Homophily

JEL Classification: C14, C31, C51, D85

Suggested Citation

Kim, Jun Sung, Structural Estimation of Pairwise Stable Networks: An Application to Social Networks in Rural India (March 15, 2018). Available at SSRN: https://ssrn.com/abstract=2262092 or http://dx.doi.org/10.2139/ssrn.2262092

Jun Sung Kim (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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