Supply Network Formation and Fragility joint wi
th Benjamin Golub and Matthew Leduc
Abs tract:
Modern production is complex: For instance, bui lding an airplane requires combining many components. In turn, many of the components - e.g., navigation systems, engines, etc. - are complex, themsel ves made up of many components, and so on. Because, in each step, several i nputs are essential, there are strong complementarities, both within a sing le firm's production and in the economy more broadly. Indeed, a disruption in sourcing can inhibit the production of many other goods. Thus complement arities have the capacity to amplify shocks and misallocations. The induced sensitivity of production to the environment created by complementarities has helped explain a range of empirical phenomena including very large cros s-country differences in production technology and aggregate productivity; rapid output increases during periods of industrialization; and the structu re of production networks and international trade flows. Of course, the pro bability of failures, and the consequences of a given failure for productio n, are endogenous firms invest effort in multisourcing and in making their supply relationships work. We study how individual multi-sourcing decisions translate into global reliability and find some stark phenomena that are n ew and that occur because of the complex nature of production (multiple ess ential inputs). While endogenous multi-sourcing makes an individual firm re latively robust to the failure of some of its relationships, and the econom y as a whole robust to firm-specific shocks, the system also exhibits very stark global fragility with respect to certain types of more aggregate shoc ks. Even when these shocks are small, aggregate output can fall discontinuo usly.
DTSTAMP:20260403T183527Z DTSTART:20190412T130000Z DTEND:20190412T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR