A Structural Model of Homophily and Clustering in Social Networks

35 Pages Posted: 6 Sep 2017

See all articles by Angelo Mele

Angelo Mele

Johns Hopkins University - Carey Business School

Date Written: September 3, 2017

Abstract

Social networks display homophily and clustering, and are usually sparse.

I develop and estimate a structural model of strategic network formation with heterogeneous players and latent community structure, whose equilibrium networks are sparse and exhibit homophily and clustering. Each player belongs to a community unobserved by the econometrician. Players' payoffs vary by community and depend on the composition of direct links and common neighbors, allowing preferences to have a bias for similar people. Players meet sequentially and decide whether to form bilateral links, after receiving a random matching shock. The probability of meeting people in different communities is smaller than the probability of meeting people in the same community, and it decreases with the size of the network. The model converges to an exponential family random graph, with weak dependence among links. As a consequence the equilibrium networks are sparse and the sufficient statistics of the network are asymptotically normal. The posterior distribution of structural parameters and unobserved heterogeneity is estimated with school friendship network data from Add Health, using a Bayesian exchange algorithm. The estimates detect high levels of racial homophily, and heterogeneity in both costs of links and payoffs from common friends. The posterior predictions show that the model is able to replicate the homophily levels and the aggregate clustering of the observed network, in contrast with standard exponential family network models.

Keywords: social networks, exponential random graphs, weak dependence, homophily, clustering, sparse networks

JEL Classification: C13, C31, C57, D85

Suggested Citation

Mele, Angelo, A Structural Model of Homophily and Clustering in Social Networks (September 3, 2017). Available at SSRN: https://ssrn.com/abstract=3031489 or http://dx.doi.org/10.2139/ssrn.3031489

Angelo Mele (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://www.meleangelo.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
76
Abstract Views
428
rank
339,957
PlumX Metrics