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Faculty of Economics

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Jochmans, K.

Modified-Likelihood Estimation of Fixed-Effect Models for Dyadic Data


Abstract: We consider point estimation and inference based on modifications of the profile likelihood in models for dyadic interactions between n agents featuring agent-specific parameters. This setup covers the β-model of network formation and generalizations thereof. The maximum-likelihood estimator of such models has bias and standard deviation of O(n-1) and so is asymptotically biased. Estimation based on modified likelihoods leads to estimators that are asymptotically unbiased and likelihood-ratio tests that exhibit correct size. We apply the modifications to versions of the β-model for network formation and of the Bradley-Terry model for paired comparisons.

Keywords: asymptotic bias, β-model, Bradley-Terry model, dyadic data, fixed effects, modified profile likelihood, paired comparisons, matching, network formation, undirected random graph

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