Supply Network Formation and Fragility

Matthew Elliott, Benjamin Golub and Matthew V. Leduc

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We model the production of complex goods in a large supply network. Firms source several essential inputs through relationships with other firms. Due to the risk of such supply relationships being idiosyncratically disrupted, firms multisource inputs and invest to make relationships with suppliers stronger. In equilibrium, aggregate production is robust to idiosyncratic disruptions. However, depending on parameters, the supply network may be robust or arbitrarily sensitive to small aggregate shocks that affect the functioning of relationships. We give conditions under which the equilibrium network is driven to a fragile configuration, where arbitrarily small aggregate shocks cause discontinuous losses. We use the model to provide a unified account of a number of stylized facts about complex economies.

Date: 2020-04-07
New Economics Papers: this item is included in nep-net
Note: mle30
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Citations: View citations in EconPapers (7)

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https://www.econ.cam.ac.uk/sites/default/files/pub ... pe-pdfs/cwpe2028.pdf

Related works:
Working Paper: Supply Network Formation and Fragility (2023)
Journal Article: Supply Network Formation and Fragility (2022)
Working Paper: Supply Network Formation and Fragility (2022)
Working Paper: Supply Network Formation and Fragility (2022)
Working Paper: Supply Network Formtion and Fragility (2021)
Working Paper: Supply Network Formtion and Fragility (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2028

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