Production Networks

Kenan Huremović and Fernando Vega-Redondo
Additional contact information
Fernando Vega-Redondo: Bocconi University & IGIER

No 1633, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: In this paper, we model the economy as a production network of competitive firms that interact in a general-equilibrium setup. First, we find that, at the unique Walrasian equilibrium, the profit of each active firm is proportional to (a suitable generalization of) its Bonacich centrality. We also determine consumer welfare at equilibrium and characterize efficient networks. Then we proceed to conduct a broad range of comparative-static analyses. These include the effect on profits and welfare of: (a) distortions (e.g. tax/subsidies) imposed on the whole economy or specific firms; (b) structural changes such as the addition of links and the elimination of nodes; (c) productivity and preference changes. We discover that the induced effects are in general nonmonotone, depend on global network features, and impinge on each sector depending on the pattern of incentralities displayed by its input providers and output users. Furthermore, the inter-sector “linkages” underlying these effects can usually be decomposed – following the heuristic dichotomy proposed by Hirschman (1958) – into a forward (push) component and a backward (pull) one. Finally, we undertake some preliminary analysis of firm dynamics and illustrate that, when evaluating policies of support and shock mitigation from a dynamic viewpoint, the reliance on strict market-based criteria can be quite misleading in terms of social welfare.

Keywords: production; networks; distortions; centrality; profit (search for similar items in EconPapers)
JEL-codes: C67 D51 D85 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2016-10
New Economics Papers: this item is included in nep-net and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2016_-_nr_33.pdf (application/pdf)

Related works:
Working Paper: Production Networks (2016)
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:aim:wpaimx:1633

Access Statistics for this paper

More papers in AMSE Working Papers from Aix-Marseille School of Economics, France AMU-AMSE - 5-9 Boulevard Maurice Bourdet, CS 50498 - 13205 Marseille Cedex 1. Contact information at EDIRC.
Bibliographic data for series maintained by Gregory Cornu ().