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Logical Differencing in Dyadic Network Formation Models with Nontransferable Utilities

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  • Wayne Yuan Gao
  • Ming Li
  • Sheng Xu

Abstract

This paper considers a semiparametric model of dyadic network formation under nontransferable utilities (NTU). NTU arises frequently in real-world social interactions that require bilateral consent, but by its nature induces additive non-separability. We show how unobserved individual heterogeneity in our model can be canceled out without additive separability, using a novel method we call logical differencing. The key idea is to construct events involving the intersection of two mutually exclusive restrictions on the unobserved heterogeneity, based on multivariate monotonicity. We provide a consistent estimator and analyze its performance via simulation, and apply our method to the Nyakatoke risk-sharing networks.

Suggested Citation

  • Wayne Yuan Gao & Ming Li & Sheng Xu, 2020. "Logical Differencing in Dyadic Network Formation Models with Nontransferable Utilities," Papers 2001.00691, arXiv.org, revised Jul 2021.
  • Handle: RePEc:arx:papers:2001.00691
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    3. Wayne Yuan Gao & Ming Li, 2020. "Robust Semiparametric Estimation in Panel Multinomial Choice Models," Papers 2009.00085, arXiv.org.

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