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The Econometrics of Utility Transferability in Dyadic Network Formation Models

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  • Joseph Marshall

Abstract

This paper studies how to estimate an individual's taste for forming a connection with another individual in a network. It compares the difficulty of estimation with and without the assumption that utility is transferable between individuals, and with and without the assumption that regressors are symmetric across individuals in the pair. I show that when pair-specific regressors are symmetric, the sufficient conditions for consistency and asymptotic normality of the maximum likelihood estimator that assumes transferable utility (TU-MLE) are also sufficient for the maximum likelihood estimator that does not assume transferable utility (NTU-MLE). When regressors are asymmetric, I provide sufficient conditions for the consistency and asymptotic normality of the NTU-MLE. I also provide a specification test to assess the validity of the transferable utility assumption. Two applications from different fields of economics demonstrate the value of my results. I find evidence of researchers using the TU-MLE when the transferable utility assumption is violated, and evidence of researchers using NTU-model-based estimators when the validity of the transferable utility assumption cannot be rejected.

Suggested Citation

  • Joseph Marshall, 2026. "The Econometrics of Utility Transferability in Dyadic Network Formation Models," Papers 2603.25641, arXiv.org.
    • Handle: RePEc:arx:papers:2603.25641
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    References listed on IDEAS

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    1. Shuyang Sheng, 2020. "A Structural Econometric Analysis of Network Formation Games Through Subnetworks," Econometrica, Econometric Society, vol. 88(5), pages 1829-1858, September.
    2. Bryan S. Graham, 2017. "An Econometric Model of Network Formation With Degree Heterogeneity," Econometrica, Econometric Society, vol. 85, pages 1033-1063, July.
    3. Bryan S. Graham, 2017. "An econometric model of network formation with degree heterogeneity," CeMMAP working papers 08/17, Institute for Fiscal Studies.
    4. Andreas Dzemski, 2019. "An Empirical Model of Dyadic Link Formation in a Network with Unobserved Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 101(5), pages 763-776, December.
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