Are Supply Networks Efficiently Resilient?

Agostino Capponi, Chuan Du and Joseph Stiglitz

No 32221, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can adjust capacity investments to hedge against supply and demand shocks. However, the social benefits of such investments are not internalized, because of market incompleteness and market power. Upstream firms underinvest in resilience, passing on the costs to downstream firms, and drive trade excessively toward the spot markets. Policies designed to incentivize capacity investment, reduce reliance on spot markets, and enhance competition ameliorate the externality.

JEL-codes: D21 D24 D25 D43 D85 E23 L13 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-com, nep-net and nep-reg
Note: IO
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