Working paper

An Econometric Model of Network Formation with an Application to Board Interlocks between Firms

Cristina Gualdani

Abstract

The paper provides a framework for partially identifying the parameters governing agents’ preferences in a static game of network formation with interdependent link decisions, complete information, and transferable or non-transferable payoffs. The proposed methodology attenuates the computational difficulties arising at the inference stage - due to the huge number of moment inequalities characterising the sharp identified set and the impossibility of brute-force calculating the integrals entering them - by decomposing the network formation game into local games which have a structure similar to entry games and are such that the network formation game is in equilibrium if and only if each local game is in equilibrium. As an empirical illustration of the developed procedure, the paper estimates firms’ incentives for having executives sitting on the board of competitors, using Italian data.

Keywords

network formation; pure strategy Nash equilibrium; pairwise stability; multiple equilibria; partial identification; moment inequalities; local games; board interlocks;

JEL codes

  • C1: Econometric and Statistical Methods and Methodology: General
  • C57: Econometrics of Games
  • C62: Existence and Stability Conditions of Equilibrium

Reference

Cristina Gualdani, An Econometric Model of Network Formation with an Application to Board Interlocks between Firms, TSE Working Paper, n. 17-898, March 2018, revised November 2018.

See also

Published in

TSE Working Paper, n. 17-898, March 2018, revised November 2018