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An Econometric Model of Network Formation with an Application to Board Interlocks between Firms

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  • Gualdani, Cristina

Abstract

The paper provides a framework for partially identifying the parameters governing agents’ preferences in a static game of network formation with interdependent link decisions, complete information, and transferable or non-transferable payoffs. The proposed methodology attenuates the computational difficulties arising at the inference stage - due to the huge number of moment inequalities characterising the sharp identified set and the impossibility of brute-force calculating the integrals entering them - by decomposing the network formation game into local games which have a structure similar to entry games and are such that the network formation game is in equilibrium if and only if each local game is in equilibrium. As an empirical illustration of the developed procedure, the paper estimates firms’ incentives for having executives sitting on the board of competitors, using Italian data.

Suggested Citation

  • Gualdani, Cristina, 2018. "An Econometric Model of Network Formation with an Application to Board Interlocks between Firms," TSE Working Papers 17-898, Toulouse School of Economics (TSE), revised Jul 2019.
  • Handle: RePEc:tse:wpaper:32550
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    Citations

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    Cited by:

    1. Luis E. Candelaria, 2020. "A Semiparametric Network Formation Model with Unobserved Linear Heterogeneity," Papers 2007.05403, arXiv.org, revised Aug 2020.
    2. Candelaria, Luis E., 2020. "A Semiparametric Network Formation Model with Unobserved Linear Heterogeneity," The Warwick Economics Research Paper Series (TWERPS) 1279, University of Warwick, Department of Economics.
    3. Eric Auerbach, 2019. "Testing for Differences in Stochastic Network Structure," Papers 1903.11117, arXiv.org, revised Nov 2020.
    4. Bontemps, Christian & Kumar, Rohit, 2020. "A geometric approach to inference in set-identified entry games," Journal of Econometrics, Elsevier, vol. 218(2), pages 373-389.
    5. Áureo de Paula, 2020. "Econometric Models of Network Formation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 775-799, August.
    6. Bryan S. Graham, 2019. "Network Data," NBER Working Papers 26577, National Bureau of Economic Research, Inc.
    7. Francesca Molinari, 2020. "Microeconometrics with Partial Identification," Papers 2004.11751, arXiv.org.
    8. Francesca Molinari, 2019. "Econometrics with Partial Identification," CeMMAP working papers CWP25/19, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    9. Bryan S. Graham, 2019. "Network Data," CeMMAP working papers CWP71/19, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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    More about this item

    Keywords

    network formation; pure strategy Nash equilibrium; pairwise stability; multiple equilibria; partial identification; moment inequalities; local games; board interlocks;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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