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We build a model of production network formation that enables
econometric estimation of the determinants of supplier choice, like
trade costs or matching frictions. The model informs an estimator
obtained from a transformation of the multinomial logit likelihood
function that conditions on two network statistics: the out-degree
of sellers (a sufficient statistic for the seller marginal costs) and
the in-degree of buyers (which is determined by decisions of buyers,
like “make-or-buy”). In an empirical application, this estimator
shows that a prominent Costa Rican highway fostered firm-to-firm
connections between core and peripheral regions, and within the
core regions themselves.
