Homophily, or the fact that similar individuals tend to interact with each other, is a prominent feature of economic and social networks. Most existing theories of homophily are based on a descriptive approach and abstract away from equilibrium considerations. I show that the equilibrium structure of homophily has empirical power, as it can be used to recover underlying preference parameters. I build a non-cooperative model of network formation, which produces a unique, empirically realistic equilibrium network. Individuals have homophilic preferences and face capacity constraints on the number of links. I develop a novel empirical method, based on the shape of the equilibrium network, which allows for the identification and estimation of the underlying homophilic preferences. I apply this new methodology to race-based choices regarding friendship decisions among American teenagers.
|Date of creation:||25 Jul 2012|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00720825|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00720825. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.