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The Robust Properties of Economies with Endogenous Production Networks

Author

Listed:
  • Simone Cerreia-Vioglio
  • Roberto Corrao
  • Joel P. Flynn
  • Giacomo Lanzani

Abstract

We characterize equilibria in a canonical class of economies with endogenous production networks, showing that log-prices equal a min-max over networks of a primitive affine function of log-productivities. This formula captures how resilience and fragility interact: the "min" reflects resilience from substituting suppliers, while the "max" reflects fragility from complementarity-induced rigidity. Applying these results, we generalize Hulten's theorem, finding that local Domar weights are generally insufficient to describe propagation of even small shocks. Moreover, we characterize how microeconomic volatility affects GDP, finding that smooth changes in Domar weights overstate its adverse effects by omitting option value from switching suppliers.

Suggested Citation

  • Simone Cerreia-Vioglio & Roberto Corrao & Joel P. Flynn & Giacomo Lanzani, 2026. "The Robust Properties of Economies with Endogenous Production Networks," NBER Working Papers 35909, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35909
    Note: EFG ME
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    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • E0 - Macroeconomics and Monetary Economics - - General

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