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

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  • Acemoglu, Daron
  • Tahbaz-Salehi, Alireza

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.

Suggested Citation

  • Acemoglu, Daron & Tahbaz-Salehi, Alireza, 2020. "Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions," CEPR Discussion Papers 15074, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15074
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    2. John G. Fernald & Huiyu Li, 2022. "The Impact of COVID on Productivity and Potential Output," Working Paper Series 2022-19, Federal Reserve Bank of San Francisco.
    3. Yoshiyuki ARATA & Daisuke MIYAKAWA, 2021. "The Size of Micro-originated Aggregate Fluctuations: An analysis of firm-level input-output linkages in Japan," Discussion papers 21066, Research Institute of Economy, Trade and Industry (RIETI).
    4. Spiros Bougheas & Adam Hal Spencer, 2022. "Fire Sales and Ex Ante Valuation of Systemic Risk: A Financial Equilibrium Networks Approach," CESifo Working Paper Series 10111, CESifo.
    5. Alonso Alfaro-Ureña & Isabela Manelici & Jose P Vasquez, 2022. "The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1495-1552.
    6. Bougheas, Spiros, 2022. "Contagion in networks: Stability and efficiency," Mathematical Social Sciences, Elsevier, vol. 115(C), pages 64-77.
    7. Chen, Jun & Elliott, Matthew & Koh, Andrew, 2023. "Capability accumulation and conglomeratization in the information age," Journal of Economic Theory, Elsevier, vol. 210(C).
    8. Kazunobu Hayakawa & Hiroshi Mukunoki, 2021. "Impacts of COVID‐19 on Global Value Chains," The Developing Economies, Institute of Developing Economies, vol. 59(2), pages 154-177, June.
    9. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2021. "Decoupling Global Value Chains," CESifo Working Paper Series 9079, CESifo.
    10. Kolev, Galina V. & Obst, Thomas, 2022. "Global value chains of the EU member states: Policy options in the current debate," IW-Reports 4/2022, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    11. Shah, Sayar Ahmad & Garg, Bhavesh, 2023. "Testing policy effectiveness during COVID-19: An NK-DSGE analysis," Journal of Asian Economics, Elsevier, vol. 84(C).
    12. Pellet, Thomas & Tahbaz-Salehi, Alireza, 2023. "Rigid production networks," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 86-102.
    13. Pablo D. Azar, 2021. "Moore’s Law and Economic Growth," Staff Reports 970, Federal Reserve Bank of New York.
    14. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    15. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2020. "Covid-19 Shocking Global Value Chains," CESifo Working Paper Series 8572, CESifo.
    16. Eduardo Rodrigues Sanguinet & Augusto Mussi Alvim & Miguel Atienza & Adelar Fochezatto, 2021. "The subnational supply chain and the COVID‐19 pandemic: Short‐term impacts on the Brazilian regional economy," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(S1), pages 158-186, November.
    17. Pablo Burriel & Iván Kataryniuk & Carlos Moreno Pérez & Francesca Viani, 2024. "A New Supply Bottlenecks Index Based on Newspaper Data," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 17-67, April.
    18. John G. Fernald & Huiyu Li, 2021. "The Impact of COVID on Potential Output," Working Paper Series 2021-09, Federal Reserve Bank of San Francisco.
    19. Kuusi, Tero & Ali-Yrkkö, Jyrki, 2023. "Shock Infections through Global Value Chains," ETLA Working Papers 109, The Research Institute of the Finnish Economy.
    20. Janice C. dup Eberly & John dup Fernald, 2022. "Jackson Hole 2022 - Reassessing Economic Constraints: Potential Output (The Impact of COVID on Productivity and Potential Output)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, August.

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    More about this item

    Keywords

    Amplification; Bargaining; Business cycles; Economic fluctuations; Production networks; Relationship-specific surplus; Supply chains;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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