Identification and Estimation of Network Models with Nonparametric Unobserved Heterogeneity
Unobserved heterogeneity in network models—such as latent homophily—often leads to biased estimation and misleading policy implications. This study proposes a nonparametric approach that identifies individuals sharing the same unobserved fixed effects through their interactive outcomes, leveraging variation in their observed characteristics to consistently estimate covariate effects without imposing parametric assumptions on the functional form of the fixed effects. Relying solely on interaction data, the method integrates nonparametric identification, fixed-effect control, and large-sample asymptotic theory to yield an estimator with strong theoretical properties. Numerical simulations confirm the estimator’s effectiveness and robustness in handling complex unobserved heterogeneity.