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arXiv · 1908.00099

Testing for Externalities in Network Formation Using Simulation

Bryan S. Graham·Andrin Pelican
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Abstract

We discuss a simplified version of the testing problem considered by Pelican and Graham (2019): testing for interdependencies in preferences over links among N (possibly heterogeneous) agents in a network. We describe an exact test which conditions on a sufficient statistic for the nuisance parameter characterizing any agent-level heterogeneity. Employing an algorithm due to Blitzstein and Diaconis (2011), we show how to simulate the null distribution of the test statistic in order to estimate critical values and/or p-values. We illustrate our methods using the Nyakatoke risk-sharing network. We find that the transitivity of the Nyakatoke network far exceeds what can be explained by degree heterogeneity across households alone.

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Bryan S. Graham, Andrin Pelican. 2019-07-31. Testing for Externalities in Network Formation Using Simulation. https://arxiv.org/abs/1908.00099

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