Supply Network Formation and Fragility
2020-06-03 at 15:30
End time: 2020-06-03 at 16:45
Location: Online Seminar
Benjamin Golub, Harvard University
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 idiosyncratically failing, firms multisource inputs and invest to make relationships with suppliers stronger. In equilibrium, aggregate production is robust to idiosyncratic failures. 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.
This is an online seminar which will take place via Zoom. The link to the seminar will be distrubted by invitation only. Please contact firstname.lastname@example.org if you would like to attend the seminar.