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Identifying Preferences in Networks with Bounded Degree

De Paula, Á; Richards-Shubik, S; Tamer, E; (2018) Identifying Preferences in Networks with Bounded Degree. Econometrica , 86 (1) pp. 263-288. 10.3982/ECTA13564. Green open access

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This paper provides a framework for identifying preferences in a large network where links are pairwise stable. Network formation models present difficulties for identification, especially when links can be interdependent, for example, when indirect connections matter. We show how one can use the observed proportions of various local network structures to learn about the underlying preference parameters. The key assumption for our approach restricts individuals to have bounded degree in equilibrium, implying a finite number of payoff‐relevant local structures. Our main result provides necessary conditions for parameters to belong to the identified set. We then develop a quadratic programming algorithm that can be used to construct this set. With further restrictions on preferences, we show that our conditions are also sufficient for pairwise stability and therefore characterize the identified set precisely. Overall, the use of both the economic model along with pairwise stability allows us to obtain effective dimension reduction.

Type: Article
Title: Identifying Preferences in Networks with Bounded Degree
Open access status: An open access version is available from UCL Discovery
DOI: 10.3982/ECTA13564
Publisher version: http://dx.doi.org/10.3982/ECTA13564
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1525419
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