Institutional Affiliation: University of California at San Diego
|An Empirical Model for Strategic Network Formation|
with , , : w16039
We develop and analyze a tractable empirical model for strategic network formation that can be estimated with data from a single network at a single point in time. We model the network formation as a sequential process where in each period a single randomly selected pair of agents has the opportunity to form a link. Conditional on such an opportunity, a link will be formed if both agents view the link as beneficial to them. They base their decision on their own characateristics, the characteristics of the potential partner, and on features of the current state of the network, such as whether the two potential partners already have friends in common. A key assumption is that agents do not take into account possible future changes to the network. This assumption avoids complications with th...