Endogenous Production Networks under Supply Chain Uncertainty

117 Pages Posted: 11 Oct 2021 Last revised: 16 Nov 2023

See all articles by Alexandr Kopytov

Alexandr Kopytov

University of Rochester - Simon Business School

Bineet Mishra

Cornell University, Ithaca, New York

Kristoffer Nimark

Cornell University - Department of Economics

Mathieu Taschereau-Dumouchel

Cornell University - Department of Economics

Date Written: October 5, 2021

Abstract

Supply chain disturbances can lead to substantial increases in production costs. To mitigate these risks, firms may take steps to reduce their reliance on volatile suppliers. We construct a model of endogenous network formation to investigate how these decisions affect the structure of the production network and the level and volatility of macroeconomic aggregates. When uncertainty increases in the model, producers prefer to purchase from more stable suppliers, even though they might sell at higher prices. The resulting reorganization of the network tends to reduce macroeconomic volatility, but at the cost of a decline in aggregate output. The model also predicts that more productive and stable firms have higher Domar weights—a measure of their importance as suppliers—in the equilibrium network. We provide a basic calibration of the model using U.S. data to evaluate the importance of these mechanisms.

Keywords: uncertainty, production network, endogenous network, input output table, supply chain, risk

JEL Classification: E32, C67, D57, D80, D85

Suggested Citation

Kopytov, Alexandr and Mishra, Bineet and Nimark, Kristoffer and Taschereau-Dumouchel, Mathieu, Endogenous Production Networks under Supply Chain Uncertainty (October 5, 2021). Available at SSRN: https://ssrn.com/abstract=3936969 or http://dx.doi.org/10.2139/ssrn.3936969

Alexandr Kopytov

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Bineet Mishra

Cornell University, Ithaca, New York ( email )

New York
United States

Kristoffer Nimark

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Mathieu Taschereau-Dumouchel (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
485
Abstract Views
1,664
Rank
108,881
PlumX Metrics