Improving control over unobservables with network data

This paper develops a method to conduct causal inference in the presence of unobserved confounders by leveraging networks with homophily, a frequently observed tendency to form edges with similar nodes.

I introduce a concept of asymptotic homophily, according to which individuals' selectivity scales with the size of the potential connection pool.

The resulting network formation model accommodates common empirical features such as homophily, degree heterogeneity, sparsity, and clustering, and provides a framework to obtain consistent estimators of treatment effects that are robust to selection on unobservables.

In an application, I recover an estimate of the effect of parental involvement on students' test scores that is greater than that of OLS, arguably due to the estimator's ability to account for unobserved ability.