Revealed Preference Tests of Network Formation Models

Khai Xiang Chiong ()
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Khai Xiang Chiong: Division of the Humanities and Social Sciences, California Institute of Technology

No 13-23, Working Papers from NET Institute

Abstract: This paper proposes a revealed preference test of network formation models. Specifically, I consider network formation models where agents are (1) strategic, (2) externalities are confined to within an agent’s k-neighborhood, where k can be varied. I show that this model can be tested using observation of a single network. I then derive necessary and sufficient condition under which the observed network is consistent with our strategic models of network formation. This non-parametric test takes the form of an algorithm involving the computation of color-preserving automorphisms of graphs. Building on the theoretical result, the test is implemented to calculate its’ statistical power and to the Banerjee et al. (2012)’s social network data.

Keywords: Revealed preference; Networks formation; Social networks; Pair- wise stability; Model testing; Testable implications; Graph automorphism (search for similar items in EconPapers)
JEL-codes: C14 C52 C72 D85 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-09
New Economics Papers: this item is included in nep-ecm, nep-gth and nep-net
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