Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189696 
Year of Publication: 
2017
Series/Report no.: 
cemmap working paper No. CWP08/17
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
I introduce a model of undirected dyadic link formation which allows for assortative matching on observed agent characteristics (homophily) as well as unrestricted agent level heterogeneity in link surplus (degree heterogeneity). Like in fixed effects panel data analyses, the joint distribution of observed and unobserved agent-level characteristics is left unrestricted. Two estimators for the (common) homophily parameter, ß0 , are developed and their properties studied under an asymptotic sequence involving a single network growing large. The first, tetrad logit (TL), estimator conditions on a sufficient statistic for the degree heterogeneity. The second, joint maximum likelihood (JML), estimator treats the degree heterogeneity {Ai0}Ni=1 as additional (incidental) parameters to be estimated. The TL estimate is consistent under both sparse and dense graph sequences, whereas consistency of the JML estimate is shown only under dense graph sequences.
Subjects: 
Network formation
homophily
degree heterogeneity
scale-free networks
incidental parameters
asymptotic bias
fixed effects
conditional likelihood
dependent U-Process
JEL: 
C31
C33
C35
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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