  How do inter-organizational networks emerge? Accounting for interdependence
among ties while studying tie formation is one of the key challenges in this
area of research. We address this challenge using an equilibrium framework
where firms' decisions to form links with other firms are modeled as a
strategic game. In this game, firms weigh the costs and benefits of
establishing a relationship with other firms and form ties if their net payoffs
are positive. We characterize the equilibrium networks as exponential random
graphs (ERGM), and we estimate the firms' payoffs using a Bayesian approach. To
demonstrate the usefulness of our approach, we apply the framework to a
co-investment network of venture capital firms in the medical device industry.
The equilibrium framework allows researchers to draw economic interpretation
from parameter estimates of the ERGM Model. We learn that firms rely on their
joint partners (transitivity) and prefer to form ties with firms similar to
themselves (homophily). These results hold after controlling for the
interdependence among ties. Another, critical advantage of a structural
approach is that it allows us to simulate the effects of economic shocks or
policy counterfactuals. We test two such policy shocks, namely, firm entry and
regulatory change. We show how new firms' entry or a regulatory shock of
minimum capital requirements increase the co-investment network's density and
clustering.

Econometrics;Applications