Asymptotic Variance Estimation

in Dyadic Regression

Based on Graham, B. S. (2020) “Network Data.” In Handbook of

Econometrics, vol. 7, ch. 2.

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Setting

I Composite likelihood estimation:

N
1 XX
θ̂ = arg max `ij (θ) (1)
θ∈Θ N(N − 1)
i=1 j6=i

where
`ij (θ) = ln fYij |Xi ,Xj (Yij |Xi , Xj ; θ).

I Conditionally Independent Dyadic model: Yij and Yik are

independent once you condition on observed covariates (Xi , Xj , Xk )
and latent attributes (Ai , Aj , Ak ).

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Example

I Santos Silva and Tenreyro (2006) pseudo-Poisson gravity model:

[exp(Wij0 θ)]Yij
fYij |Xi ,Xj (Yij |Xi , Xj ; θ) = exp[− exp(Wij0 θ)]
Yij !

where
I Yij = exports from country i to country j,
I Wij = (ln GDPi , ln GDPj , ln distij )0 .

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Limit Distribution

I Mean expansion of the estimator:

√ √
N(θ̂ − θ0 ) = [−HN (θ̄)]+ NSN (θ0 ).

p
I Assume HN (θ̄) → Γ0 invertible, and that we have a consistent
estimator Γ̂ of Γ0 .
I Decompose the score:

(1st) Projec-
(1st) Projection tion Error
z }| { z}|{
SN (θ0 ) = U1N + U2N + VN . (2)
|{z} |{z}
(2nd) Hájek (2nd) Projec-
Projection tion Error

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Details on Score Decomposition I

I To clarify the connection with U-Statistics, rewrite SN as

 −1 X
N sij + sji
SN = .
2 2
i<j

I Project SN onto observed covariates and latent attributes:

 −1 X
N s̄ij + s̄ji
UN = E[SN |X , A] := ,
2 2
i<j

where s̄ij = s̄(Xi , Ai , Xj , Aj ) and

s̄(xi , ai , xj , aj ) = E[sij |Xi = xi , Ai = ai , Xj = xj , Aj = aj ].

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Details on Score Decomposition II

I Projection error:
 −1 X
N (sij − s̄ij ) + (sji − s̄ji )
VN := .
2 2
i<j

I Further Hájek Projection of UN into an ego (keeping own (Xi , Ai )

fixed) and alter (keeping others’ (Xj , Aj ) fixed) terms:

N
2 X s̄ e (Xi , Ai ) + s̄ a (Xi , Ai )
U1N := ,
N 2
i=1

where s̄ e (x, a) = E[s̄(x, a, Xj , Aj )], s̄ a (x, a) = E[s̄(Xi , Ai , xj , aj )].

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Details on Score Decomposition III

I Second projection error:

 −1 X 
N s̄ij + s̄ji s̄ e (Xi , Ai ) + s̄ a (Xi , Ai )
U2N := −
2 2 2
i<j

s̄ e (Xj , Aj ) + s̄ a (Xj , Aj )

− .
2

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Variance of the Score I

I For p = 1, 2 let
 
s̄i1 ,i2 + s̄i2 ,i1 s̄j1 ,j2 + s̄j2 ,j1
Σp := Cov ,
2 2

when the dyads {i1 , i2 } and {j1 , j2 } share p = 1, 2 agents in common.

I Notice that:
    
sij + sji  sik + ski 
Σ1 = Cov E Xi , Ai , Xj , Aj , E Xi , Ai , Xk , Ak
2 2
 
sij + sji sik + ski
= Cov ,
2 2

by Cond. Indep. assumption.

I Moreover:
  
sij + sji 
Σ2 = Var E Xi , Ai , Xj , Aj .
2
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Variance of the Score II
I Define (abusing notation):
"  0 #
(sij − s̄ij ) + (sji − s̄ji ) (sij − s̄ij ) + (sji − s̄ji )
Σ3 : = E
2 2
  
sij + sji 
= E Var Xi , Ai , Xj , Aj .
2
so that  
sij + sji
Σ2 + Σ3 = Var .
2

I Hoeffding (1948) U-Statistic variance decomposition:

4Σ1 2 2
Var(SN ) = + (Σ2 − 2Σ1 ) + Σ3 . (3)
N
|{z} N(N − 1) N(N − 1)
| {z } | {z }
Var(U1N ) Var(U2N ) Var(VN )

I Although Var(U2N ) and Var(VN ) vanish asymptotically (are of order

N −2 ), they may be important for finite sample inference
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Estimators of the Variance
1. Benchmark Analogue of (3) I

√
I Estimate Ω := Var( NSN ) = 4Σ1 + 2/(N − 1)(Σ2 + Σ3 − 2Σ1 ) by
sample counterparts using:
 −1 X (  0
N 1 ŝij + ŝji ŝik + ŝki
Σ̂1 :=
3 3 2 2
i<j<k
  0   0 )
ŝij + ŝji ŝjk + ŝkj ŝjk + ŝkj ŝik + ŝki
+ + .
2 2 2 2

I Intuition: there are N3 triads ijk, and we can extract 3 double-pairs

with an index in common for each of them: {ij} and {ik}, {ij} and
{jk}, {jk} and {ik}. Hence, Σ̂1 is the sample covariance of
(ŝij + ŝji )/2 with other dyads sharing exactly 1 index in common.

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Estimators of the Variance
1. Benchmark Analogue of (3) II

I Also:  −1 X   0
N ŝij + ŝji ŝij + ŝji
Σ\
2 + Σ3 = .
2 2 2
i<j

I Analogue variance estimator:

(Γ̂0 Ω̂−1
A Γ̂)
−1

for
2
Ω̂A := 4Σ̂1 + 2 + Σ3 − 2Σ̂1 ).
(Σ\
N −1

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Estimators of the Variance
2. Fafchamps and Gubert (2007) I

I Fafchamps and Gubert (2007) propose (with finite sample correction

ignored here):

1 XXXX
Ω̂FG := 2
Ci1 ,i2 ,j1 ,j2 ŝi01 ,i2 ŝj1 ,j2 ,
N(N − 1)
i1 i2 6=i1 j1 j2 6=j1

where Ci1 ,i2 ,j1 ,j2 = 1 if {i1 , i2 } and {j1 , j2 } share at least one index in
common and 0 otherwise.
I Widely cited paper, but contained only an informal discussion of why
the proposed estimator leads to asymptotically correct inference.

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Estimators of the Variance
2. Fafchamps and Gubert (2007) II

I Graham shows Ω̂A and Ω̂FG are numerically equivalent.

I To see why: Ω̂FG sums over N2 × N2 pairs of dyads.

I Of those, there are 3 N unique pairs of dyads sharing exactly one

3
agent in common, and each of those appears 8 times in the sum
(different orders of the indices)
I Likewise, there are N pairs of dyads sharing the 2 agents in


2
common, each appearing 4 times in the sum

     
1 N N \
Ω̂FG = 8 × 3 Σ̂ 1 + 4 × Σ 2 + Σ 3
N(N − 1)2 3 2
2
= 4Σ̂1 + 2 + Σ3 − 2Σ̂1 ) = Ω̂A .
(Σ\
N −1

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Estimators of the Variance
3. Snijders and Borgatti (1999) Jacknife I

I Snijders and Borgatti (1999) suggest (with informal reasoning only)

N
N −2X
Ω̂SB = [SN,−i (θ̂) − SN (θ̂)][SN,−i (θ̂) − SN (θ̂)]0 ,
2
i=1

N−1


where SN,−i is the average of the dyadic scores over the 2 dyads
that do not include agent i.
I Graham shows the above not consistent, but can modify it slightly
to make it consistent.

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Estimators of the Variance
3. Snijders and Borgatti (1999) Jacknife II

I Define
1 X ŝij + ŝji
ˆs̄1i :=
N −1 2
j6=i

(average of dyadic scores for pairs including i), so that

−1 N

ŜN,−i = N−1
2 ( 2 ŜN − (N − 1)ˆs̄1i ).

I ˆs̄1i is the usual estimate of the i-th term of the Hájek projection, so
PN
a natural estimate of Σ1 is Σ̃1 := N1 i=1 ˆs̄1i ˆs̄1i0 . With some
algebraic manipulation:

2(N − 2) 4
Ω̂SB = 4Σ̃1 = 4Σ̂1 + 2 + Σ3 − Σ̂1 )
(Σ\
N N −1
which is consistent.

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Estimators of the Variance
3. Snijders and Borgatti (1999) Jacknife II

I Moreover, we can add a bias correction inspired by Cattaneo et al.

(2014)’s work on density-weighted average derivatives so that:

2(N − 2) 2
Ω̂SB − (Σ\
2 + Σ3 ) = Ω̂FG = Ω̂A .
N N −1

I Graham (2020): “This is awesome.”

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