SIMULTANEOUS EQUATIONS MODELS WITH HIGHER-ORDER SPATIAL OR SOCIAL NETWORK INTERACTIONS

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Drukker et al (495.78 KB)
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2022-03-28

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Drukker, D., Egger, P., & Prucha, I. (2022). SIMULTANEOUS EQUATIONS MODELS WITH HIGHER-ORDER SPATIAL OR SOCIAL NETWORK INTERACTIONS. Econometric Theory, 1-48.

Abstract

This paper develops an estimation methodology for network data generated from a system of simultaneous equations, which allows for network interdependencies via spatial lags in the endogenous and exogenous variables, as well as in the disturbances. By allowing for higher-order spatial lags, our specification provides important flexibility in modeling network interactions. The estimation methodology builds, among others, on the two-step generalized method of moments estimation approach introduced in Kelejian and Prucha (1998, Journal of Real Estate Finance and Economics 17, 99–121; 1999, International Economic Review 40, 509–533; 2004, Journal of Econometrics 118, 27–50). The paper considers limited and full information estimators, and one- and two-step estimators, and establishes their asymptotic properties. In contrast to some of the earlier two-step estimation literature, our asymptotic results facilitate joint tests for the absence of all forms of network spillovers.

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