Business networks, production chains and productivity: A theory of input-output architecture
AbstractThis paper studies an analytically tractable model of the formation and evolution of chains of production. Over time, entrepreneurs accumulate techniques to produce their good using goods produced by other entrepreneurs and labor as inputs. The value of a technique depends on both the productivity embodied in the technique and the cost of the particular input; when producing, each entrepreneur selects the technique that delivers the best combination. The collection of known production techniques form a dynamic network of potential chains of production: the input-output architecture of the economy. Aggregate productivity depends on whether the lower cost firms are the important suppliers of inputs. When the share of intermediate goods in production is high, the lower cost firms are selected as suppliers more frequently. This raises aggregate productivity and also increases the concentration of sales of intermediate goods.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2011-12.
Date of creation: 2011
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
- NEP-EFF-2011-12-19 (Efficiency & Productivity)
- NEP-NET-2011-12-19 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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