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Enhancing Resilience: Model-based Simulations

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  • d'Artis Kancs

Abstract

Since several years, the fragility of global supply chains (GSCs) is at historically high levels. In the same time, the landscape of hybrid threats is expanding; new forms of hybrid threats create different types of uncertainties. This paper aims to understand the potential consequences of uncertain events - like natural disasters, pandemics, hybrid and/or military aggression - on GSC resilience and robustness. Leveraging a parsimonious supply chain model, we analyse how the organisational structure of GSCs interacts with uncertainty, and how risk-aversion vs. ambiguity-aversion, vertical integration vs. upstream outsourcing, resilience vs. efficiency trade-offs drive a wedge between decentralised and centralised optimal GSC diversification strategies in presence of externalities. Parameterising the scalable data model with World-Input Output Tables, we simulate the survival probability of a GSC and implications for supply chain robustness and resilience. The presented model-based simulations provide an interoperable and directly comparable conceptualisation of positive and normative effects of counterfactual resilience and robustness policy choices under individually optimal (decentralised) and socially optimal (centralised) GSC organisation structures.

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  • d'Artis Kancs, 2022. "Enhancing Resilience: Model-based Simulations," Papers 2212.11108, arXiv.org.
    • Handle: RePEc:arx:papers:2212.11108
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    1. Bomin Jiang & Daniel Rigobon & Roberto Rigobon, 2022. "From Just-in-Time, to Just-in-Case, to Just-in-Worst-Case: Simple Models of a Global Supply Chain under Uncertain Aggregate Shocks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 141-184, March.
    2. Rebecca Freeman & Richard Baldwin, 2022. "Risks and Global Supply Chains: What We Know and What We Need to Know," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 153-180, August.
    3. Pavel Ciaian & d'Artis Kancs & Miroslava Rajcaniova, 2021. "Interdependencies between Mining Costs, Mining Rewards and Blockchain Security," Annals of Economics and Finance, Society for AEF, vol. 22(1), pages 25-62, May.
    4. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
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    More about this item

    JEL classification:

    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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