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Simultaneous equations with binary outcomes and social interactions

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  • Xiaodong Liu

Abstract

This paper introduces a discrete-choice simultaneous-equation social interaction model. We provide a microfoundation for the econometric model by considering an incomplete information game where individuals interact in multiple activities through a network. We characterize the sufficient condition for the existence of a unique BNE of the game. We discuss the identification of the econometric model and propose a two-stage estimation procedure, where the reduced form parameters are estimated by the NPL algorithm in the first stage and the structural parameters are recovered from the estimated reduced form parameters by the AGLS estimator in the second stage. Monte Carlo experiments show that the proposed estimation procedure performs well in finite samples and remains computationally feasible when networks are large. We also provide an empirical example to illustrate the empirical relevance of the proposed model.

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  • Xiaodong Liu, 2019. "Simultaneous equations with binary outcomes and social interactions," Econometric Reviews, Taylor & Francis Journals, vol. 38(8), pages 921-937, September.
    • Handle: RePEc:taf:emetrv:v:38:y:2019:i:8:p:921-937
    DOI: 10.1080/07474938.2018.1485836
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    Cited by:

    1. Aristide Houndetoungan, 2024. "Count Data Models with Heterogeneous Peer Effects under Rational Expectations," Papers 2405.17290, arXiv.org.
    2. Bramoullé, Yann & Boucher, Vincent, 2020. "Binary Outcomes and Linear Interactions," CEPR Discussion Papers 15505, C.E.P.R. Discussion Papers.
    3. Lin, Zhongjian & Hu, Yingyao, 2024. "Binary choice with misclassification and social interactions, with an application to peer effects in attitude," Journal of Econometrics, Elsevier, vol. 238(1).
    4. Alex Centeno, 2022. "A Structural Model for Detecting Communities in Networks," Papers 2209.08380, arXiv.org, revised Oct 2022.

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