Social Interactions Models with Latent Structures

This paper studies estimation and inference of heterogeneous social interactions featuring group fixed effects and slope heterogeneity under latent structure.

Theoretically, in a binary choice model with social interactions we characterize the asymptotic bias of the slope coefficient due to the presence of high dimensional incidental parameters.

Computationally, we invoke parametric bootstrap method to debias and establish asymptotic validity.

Furthermore, tailored algorithms are employed to explore the latent structures and determine the number of clusters.

Monte Carlo simulations confirm strong finite sample performance of our methods.

In an application to students' risky behaviors, the algorithm detects two latent clusters and finds that peer effects are significant within one of the clusters, demonstrating the practical applicability in uncovering heterogeneous social interactions.