Citation

Discussion Paper Details

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

Author(s): Daron Acemoglu and Alireza Tahbaz-Salehi

Publication Date: July 2020

Keyword(s): Amplification, Bargaining, business cycles, Economic Fluctuations, production networks, relationship-specific surplus and Supply Chains

Programme Area(s): Industrial Organization and Macroeconomics and Growth

Abstract: 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.

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Bibliographic Reference

Acemoglu, D and Tahbaz-Salehi, A. 2020. 'Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15074