Document Type

Working Paper


Spring 4-2014


Networks, Heterogeneous Peer Effects, Spatial Autoregressive Model, Two-Stage Least Squares, Efficiency, Policy Evaluation, Treatment Response, Indirect Treatment Effect




Working Papers Series


Economics | Public Affairs, Public Policy and Public Administration | Public Economics | Social and Behavioral Sciences


This paper studies the identification and estimation of treatment response with heterogeneous spillovers in a network model. We generalize the standard linear-in-means model to allow for multiple groups with between and within-group interactions. We provide a set of identification conditions of peer effects and consider a 2SLS estimation approach. Large sample properties of the proposed estimators are derived. Simulation experiments show that the estimators perform well in finite samples. The model is used to study the effectiveness of policies where peer effects are seen as a mechanism through which the treatments could propagate through the network. When interactions among groups are at work, a shock on a treated group has effects on the non-treated. Our framework allows for quantifying how much of the indirect treatment effect is due to variations in the characteristics of treated peers (treatment contextual effects) and how much is because of variations in peer outcomes (peer effects).

Additional Information

Working paper no. 167

The authors are grateful to Badi Baltagi, Giacomo De Giorgi, Herman K. van Dijk, Chihwa Kao, Alfonso Flores-Lagunes, Kajal Lahiri, Yoonseok Lee, Xiaodong Liu, Bin Peng, Fa Wang, Ian Wright, and to participants at the Econometrics Study Group at Syracuse University and at the 2014 Camp Econometrics NY for helpful comments and stimulating discussions.

The views expressed here do not necessarily reflect those of Banca d’Italia.

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Creative Commons Attribution 3.0 License
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