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Simultaneous Equations Models With Higher-Order Spatial Or Social Network Interactions

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  • Drukker, David M.
  • Egger, Peter H.
  • Prucha, Ingmar R.

Abstract

This paper develops an estimation methodology for network data generated from a system of simultaneous equations, which allows for network interdependencies via spatial lags in the endogenous and exogenous variables, as well as in the disturbances. By allowing for higher-order spatial lags, our specification provides important flexibility in modeling network interactions. The estimation methodology builds, among others, on the two-step generalized method of moments estimation approach introduced in Kelejian and Prucha (1998, Journal of Real Estate Finance and Economics 17, 99–121; 1999, International Economic Review 40, 509–533; 2004, Journal of Econometrics 118, 27–50). The paper considers limited and full information estimators, and one- and two-step estimators, and establishes their asymptotic properties. In contrast to some of the earlier two-step estimation literature, our asymptotic results facilitate joint tests for the absence of all forms of network spillovers.

Suggested Citation

  • Drukker, David M. & Egger, Peter H. & Prucha, Ingmar R., 2023. "Simultaneous Equations Models With Higher-Order Spatial Or Social Network Interactions," Econometric Theory, Cambridge University Press, vol. 39(6), pages 1154-1201, December.
    • Handle: RePEc:cup:etheor:v:39:y:2023:i:6:p:1154-1201_4
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