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Coase Meets Bellman: Dynamic Programming for Production Networks

Author

Listed:
  • Tomoo Kikuchi
  • Kazuo Nishimura
  • John Stachurski
  • Junnan Zhang

Abstract

We show that, for a range of models related to production networks, competitive equilibria can be recovered as solutions to dynamic programs. Although these programs fail to be contractive, we show that they are fully tractable when matched with the right tools of analysis. These tools add analytical power and open new avenues for computation. As an illustration, we cover applications related to Coase's theory of the firm, including equilibria in linear production chains with transaction costs and other kinds of frictions, as well as equilibria in production networks with multiple partners. We show how the same techniques also extend to other equilibrium and decision problems, such as the distribution of management layers within firms and the spatial distribution of cities.

Suggested Citation

  • Tomoo Kikuchi & Kazuo Nishimura & John Stachurski & Junnan Zhang, 2019. "Coase Meets Bellman: Dynamic Programming for Production Networks," Papers 1908.10557, arXiv.org, revised Dec 2020.
  • Handle: RePEc:arx:papers:1908.10557
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    References listed on IDEAS

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