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The Cambridge-INET Institute

 

Ben Golub (Harvard)

"Supply Network Formation and Fragility"

Abstract: We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Due to the risk of such supply relationships being idiosyncratically disrupted, firms multisource inputs and strategically invest to make relationships with suppliers stronger. Aggregate production is robust to idiosyncratic disruptions. However, there is a regime in which equilibrium supply networks are fragile, with small aggregate shocks to relationships causing arbitrarily steep drops in output. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks.

When: Friday 9th October 2020 - 1:00pm

Where: Zoom Online Meeting

Reading Group: Cambridge-INET Networks Webinar Series

Theme: networks