Speaker: Abhimanyu Gupta, University of Essex

Title: Testing linearity of network interaction functions, joint with Jungyoon Lee (Royal Holloway) and Francesca Rossi (Verona)

Abstract

We propose and theoretically justify a computationally straightforward test for the linearity of a network interaction function. Such functions arise commonly, either as practitioner imposed specifications or due to optimizing behaviour. Our test is nonparametric, but based on the Lagrange Multiplier principle. This entails estimation only under the null hypothesis, which imposes a familiar, easy to estimate linear spatial autoregressive model. Monte Carlo simulations show excellent size control and power with bootstrap critical values. Empirical examples to municipality tax competition in Finland illustrate the test's practical usefulness.

Area of research: Econometrics

Host: Luke Taylor 

Organisers: Luke Taylor and Leopoldo Catania.