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Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions

Daron Acemoglu and Alireza Tahbaz-Salehi

No 27565, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks. We develop a non-competitive model where customized supplier-customer relations increase productivity, and the relationship-specific surplus generated between firms and their suppliers is divided via bargaining. Changes in productivity alter the distribution of surplus throughout the economy and determine which firms are at the margin of failure. A firm’s failure may spread to its suppliers and customers and to firms in other parts of the production network. We provide existence, uniqueness, and a series of comparative statics results, and show how the response of the equilibrium production network may propagate recessionary shocks.

JEL-codes: D57 E23 E32 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-bec and nep-mac
Note: EFG IO
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