Supply Network Formation and Fragility
Article dans une revue: We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. A supply network is called fragile if aggregate output is very sensitive to small aggregate shocks. We show that supply networks of intermediate productivity are fragile in equilibrium, even though this is always inefficient. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks.
Auteur(s)
Matthew Elliott, Benjamin Golub, Matthew V Leduc
Revue
- American Economic Review
Date de publication
- 2022
Mots-clés JEL
Pages
- 2701-2747
URL de la notice HAL
Version
- 1
Volume
- 112