Supply Chain Resilience: Should Policy Promote International Diversification or Reshoring?

Gene M. Grossman, Elhanan Helpman and Hugo Lhuillier

Journal of Political Economy, 2023, vol. 131, issue 12, 3462 - 3496

Abstract: Little is known about optimal policy in the face of global supply chain disruptions. Should governments promote resilience by subsidizing backup sources of input supply in multiple countries? Should they encourage firms to source from safer domestic suppliers? We address these questions in a model of production with a critical input and exogenous risks of supply disturbances. With constant elasticity of substitution preferences, a subsidy for diversification achieves the constrained social optimum. When the demand elasticity rises with price, private investments in resilience may be socially excessive and the social planner may wish to discourage diversification while favoring sourcing from abroad.

Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://dx.doi.org/10.1086/725173 (application/pdf)
http://dx.doi.org/10.1086/725173 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:doi:10.1086/725173

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().