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Are Supply Networks Efficiently Resilient?

Author

Listed:
  • Agostino Capponi
  • Chuan Du
  • Joseph E. Stiglitz

Abstract

We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can adjust capacity investments to hedge against supply and demand shocks. However, the social benefits of such investments are not internalized, because of market incompleteness and market power. Upstream firms underinvest in resilience, passing on the costs to downstream firms, and drive trade excessively toward the spot markets. Policies designed to incentivize capacity investment, reduce reliance on spot markets, and enhance competition ameliorate the externality.

Suggested Citation

  • Agostino Capponi & Chuan Du & Joseph E. Stiglitz, 2024. "Are Supply Networks Efficiently Resilient?," NBER Working Papers 32221, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32221
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    Cited by:

    1. Hadachek, Jeffrey & Ma, Meilin, 2024. "Risk Externalities in Vertical Supply Chains," 2024 Annual Meeting, July 28-30, New Orleans, LA 343748, Agricultural and Applied Economics Association.
    2. Yasuyuki TODO, 2025. "Reconsidering Supply Chains and Industrial Policy from the Economic Security Perspective," Policy Discussion Papers 25005, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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