Supply Network Formation and Fragility
We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. A supply network is called fragile if aggregate output is very sensitive to small aggregate shocks. We show that supply networks of intermediate productivity are fragile in equilibrium, even though this is always inefficient. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Propagation of disruptions in supply networks of essential goods: A population-centered perspective of systemic risk
The Covid-19 pandemic drastically emphasized the fragility of national and international supply networks (SNs),leading to significant supply shortages of essential goods for people, such as food and medical equipment. Se…
ManagementFirm Heterogeneity, Market Power and Macroeconomic Fragility
We study how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long slumps. We propose a theory in which the positive interaction between firm entry, competition and factor…
Enhancing Resilience: Model-based Simulations
Since several years, the fragility of global supply chains (GSCs) is at historically high levels. In the same time, the landscape of hybrid threats is expanding; new forms of hybrid threats create different types of unce…
counterfactualmodelQuantifying firm-level economic systemic risk from nation-wide supply networks
Crises like COVID-19 or the Japanese earthquake in 2011 exposed the fragility of corporate supply networks. The production of goods and services is a highly interdependent process and can be severely impacted by the defa…
ManagementManaging Manufacturing and Delivery of Personalised Medicine: Current and Future Models
With almost 50% of annual commercial drug approvals being Personalised Medicine (PM) and its huge potential to improve quality of life, this emerging medical sector has received increased attention from the industry and …