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

This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks

From:
Foreign, Commonwealth & Development Office
Published
31 July 2020
Document Type:
Working Paper
Theme:
Economic Growth
Authors:
Acemoglu, D, Tahbaz-Salehi, A

Abstracts

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.

This work is part of the ‘Macroeconomics in Low-income countries’ programme

Citation

Daron Acemoglu and Alireza Tahbaz-Salehi (2020) Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions. NBER Working Paper No. 27565

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

Updates to this page

Published 31 July 2020
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