Econometric Models of Network Formation

Abstract

This article provides a selective review on the recent literature on econometric models of network formation. The survey starts with a brief exposition on basic concepts and tools for the statistical description of networks. I then offer a review of dyadic models, focussing on statistical models on pairs of nodes and describe several developments of interest to the econometrics literature. The article also presents a discussion of nondyadic models where link formation might be influenced by the presence or absence of additional links, which themselves are subject to similar influences. This is related to the statistical literature on conditionally specified models and the econometrics of game theoretical models. I close with a (non-exhaustive) discussion of potential areas for further development.

Friendship Networks and Political Opinions: A Natural Experiment Among Future French Politicians

“…Traditionally, the endogeneity of network formation received rather limited attention and treatment in studies that rely mostly on restrictions on the structure of interactions and uses of control variables, including fixed effects, with an identification underlined by Bramoullé et al's (2009) results, such as Bifulco et al (2011);Calvó-Armengol et al (2009); Patacchini and Zenou (2016); DeGiorgi et al (2010). A different strand of the literature takes a structural approach that explicitly models the formation of network based on assumptions on individuals' interactions and expectations, and derives identification conditions from the model, including recent developments such as Mele (2017); Badev (forthcoming); Goldsmith- Pinkham and Imbens (2013), as reviewed by De Paula (2017Paula ( , 2020, Graham (2015), and Graham and De Paula (2020). 5 Different from those approaches, ours relies on a source of variation that draws its exogeneity and validity from design, not modeling assumptions, and then uses a relatively simple and transparent IV strategy to identify the LATE.…”