Understanding the Dynamics of Value Chains with Irreversible Investments

Lionel Cosnard

Bordeaux Economics Working Papers from Bordeaux School of Economics (BSE)

Abstract: This paper develops an original theoretical framework for the dynamic modeling and analysis of value chains with irreversible investments. Using a recursive model of a 2-stages value chain, it shows in a simple way how economies of scale, agents' expectations, market structure, capital durability and access to capital shape the dynamic behavior of value chains. Depending on these characteristics, value chains with irreversible investments can display multiple steady-state equilibria, stable cyclical regimes or hysteretic behaviors. The consequences on the resilience of value chains of the age of capital and their isolation from the rest of the economy are also highlighted. Finally, we discuss the importance of coordination issues in the dynamics of value chains.

Keywords: Value-chains; Irreversible investments; Coordination; Resilience; Hysteresis; Recursive dynamic (search for similar items in EconPapers)
JEL-codes: C61 C73 D25 D40 D84 L13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:grt:bdxewp:2020-02

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