Revealed Preference Tests of Network Formation Models
AbstractThis paper proposes a revealed preference test of network formation models. Specifically, I consider network formation models where agents are (1) strategic, (2) externalities are confined to within an agentâ€™s k-neighborhood, where k can be varied. I show that this model can be tested using observation of a single network. I then derive necessary and sufficient condition under which the observed network is consistent with our strategic models of network formation. This non-parametric test takes the form of an algorithm involving the computation of color-preserving automorphisms of graphs. Building on the theoretical result, the test is implemented to calculate itsâ€™ statistical power and to the Banerjee et al. (2012)â€™s social network data.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 13-23.
Length: 24 pages
Date of creation: Sep 2013
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Web page: http://www.NETinst.org/
Revealed preference; Networks formation; Social networks; Pair- wise stability; Model testing; Testable implications; Graph automorphism;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-ECM-2013-10-18 (Econometrics)
- NEP-GTH-2013-10-18 (Game Theory)
- NEP-NET-2013-10-18 (Network Economics)
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