Testing for Peer Effects without Specifying the Network Structure

Abstract: This paper proposes an Anderson-Rubin (AR) test for the presence of peer effects in panel data without the need to specify the network structure. The unrestricted model of our test is a linear panel data model of social interactions with dyad-specific peer effect coefficients for all potential peers. The proposed AR test evaluates if these peer effect coefficients are all zero. As the number of peer effect coefficients increases with the sample size, so does the number of instrumental variables (IVs) employed to test the restrictions under the null, rendering Bekker's many-IV environment. By extending existing many-IV asymptotic results to panel data, we establish the asymptotic validity of the proposed AR test. Our Monte Carlo simulations show the robustness and superior performance of the proposed test compared to some existing tests with misspecified networks. We provide two applications to demonstrate its empirical relevance.