Original title: Matching to suppliers in the production network: an empirical framework
Authors: Alfaro-Ureña, A. ; Zacchia, Paolo
Document type: Research reports
Year: 2024
Language: eng
Series: CERGE-EI Working Paper Series, volume: 775
Abstract: This paper develops a framework for the empirical analysis of the determinants of input supplier choice on the extensive margin using firm-to-firm transaction data. Building on a theoretical model of production network formation, we characterize the assumptions that enable a transformation of the multinomial logit likelihood function from which the seller fixed effects, which encode the seller marginal costs, vanish. This transformation conditions, for each subnetwork restricted to one supplier industry, on the out-degree of sellers (a sufficient statistic for the seller fixed effect) and the in-degree of buyers (which is pinned down by technology and by “make-or-buy” decisions). This approach delivers a consistent estimator for the effect of dyadic explanatory variables, which in our model are interpreted as matching frictions, on the supplier choice probability. The estimator is easy to implement and in Monte Carlo simulations it outperforms alternatives based on group fixed effects. In an empirical application about the effect of a major Costa Rican infrastructural project on firm-to-firm connections, our approach yields estimates typically much smaller in magnitude than those from naive multinomial logit.
Keywords: conditional logit; production network; supplier choice

Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp775.pdf
Original record: https://hdl.handle.net/11104/0353077

Permalink: http://www.nusl.cz/ntk/nusl-614140


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