IDEAS home Printed from https://ideas.repec.org/p/pri/econom/2023-03.html
   My bibliography  Save this paper

Resilience in Vertical Supply Chains

Author

Listed:
  • Gene M. Grossman

    (Princeton University)

  • Elhanan Helpman

    (Harvard University)

  • Alejandro Sabal

    (Princeton University)

Abstract

Forward-looking investments determine the resilience of firms' supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in resilience, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in resilience. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience and network formation depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are non-increasing along the chain.

Suggested Citation

  • Gene M. Grossman & Elhanan Helpman & Alejandro Sabal, 2023. "Resilience in Vertical Supply Chains," Working Papers 2023-03, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2023-03
    as

    Download full text from publisher

    File URL: https://www.princeton.edu/~grossman/Resilience092323.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Emmanuel Dhyne & Ayumu Ken Kikkawa & Toshiaki Komatsu & Magne Mogstad & Felix Tintelnot, 2022. "Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony," NBER Working Papers 30447, National Bureau of Economic Research, Inc.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. Emmanuel Dhyne & Ayumu Ken Kikkawa & Toshiaki Komatsu & Magne Mogstad & Felix Tintelnot,, 2022. "Foreign demand shocks to production networks: Firm responses and worker impacts," Working Paper Research 412, National Bank of Belgium.
    4. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michele Polo & Massimo Motta, 2024. "Supply Chain Disruption and Precautionary Industrial Policy," Working Papers 1466, Barcelona School of Economics.
    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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pellet, Thomas & Tahbaz-Salehi, Alireza, 2023. "Rigid production networks," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 86-102.
    2. Bezerra De Goes,Carlos Andre & Lopez-Acevedo,Gladys C. & Robertson,Raymond, 2023. "Gender-Segmented Labor Markets and Trade Shocks," Policy Research Working Paper Series 10518, The World Bank.
    3. Bijnens, Gert & Anyfantaki, Sofia & Colciago, Andrea & De Mulder, Jan & Falck, Elisabeth & Labhard, Vincent & Lopez-Garcia, Paloma & Meriküll, Jaanika & Parker, Miles & Röhe, Oke & Schroth, Joachim & , 2024. "The impact of climate change and policies on productivity," Occasional Paper Series 340, European Central Bank.
    4. Dhyne, Emmanuel & Kikkawa, Ayumu Ken & Kong, Xianglong & Mogstad, Magne & Tintelnot, Felix, 2023. "Endogenous production networks with fixed costs," Journal of International Economics, Elsevier, vol. 145(C).
    5. Nefs, Merten & van Haaren, Jeroen & van Oort, Frank, 2023. "The limited regional employment benefits of XXL-logistics centres in the Netherlands," Journal of Transport Geography, Elsevier, vol. 109(C).
    6. Carlos G'oes & Gladys Lopez-Acevedo & Raymond Robertson, 2023. "Gender-Segmented Labor Markets and Foreign Demand Shocks," Papers 2301.09252, arXiv.org, revised Dec 2023.
    7. Donna, Javier D. & Pereira, Pedro & Trindade, Andre & Yoshida, Renan C., 2020. "Direct-to-Consumer Sales by Manufacturers and Bargaining," MPRA Paper 105773, University Library of Munich, Germany.
    8. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    9. Stennek, Johan & Tangerås, Thomas, 2006. "Competition vs. Regulation in Mobile Telecommunications," Working Paper Series 685, Research Institute of Industrial Economics.
    10. Emmanuel Petrakis & Panagiotis Skartados, 2022. "Vertical Opportunism, Bargaining, and Share-Based Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(4), pages 549-565, June.
    11. repec:hal:spmain:info:hdl:2441/6493 is not listed on IDEAS
    12. Walid Hejazi, 2005. "Are Regional Concentrations of OECD Exports and Outward FDI Consistent with Gravity?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 423-436, December.
    13. Maria Bas & Vanessa Strauss-Kahn, 2013. "Input-Trade Liberalization, Export Prices and Quality Upgrading," Working Papers hal-03460775, HAL.
    14. Eckhard Janeba, 2004. "International Trade and Cultural Identity," NBER Working Papers 10426, National Bureau of Economic Research, Inc.
    15. Fanti, Luciano, 2013. "Cross-ownership and unions in a Cournot duopoly: When profits reduce with horizontal product differentiation," Japan and the World Economy, Elsevier, vol. 27(C), pages 34-40.
    16. Mauleon, Ana & Vannetelbosch, Vincent J., 2003. "Market competition and strike activity," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 737-758, May.
    17. Francesco Amodio & Leonardo Baccini & Michele Di Maio, 2021. "Security, Trade, and Political Violence," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 1-37.
    18. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    19. Allain, Marie-Laure & Avignon, Rémi & Chambolle, Claire, 2020. "Purchasing alliances and product variety," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    20. Liao, Wei & Santacreu, Ana Maria, 2015. "The trade comovement puzzle and the margins of international trade," Journal of International Economics, Elsevier, vol. 96(2), pages 266-288.
    21. Walter Beckert, 2018. "An Empirical Analysis of Countervailing Power in Business-to-Business Bargaining," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(3), pages 369-402, May.

    More about this item

    Keywords

    Firms; Resilience; Vertical Supply Chains;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:econom:2023-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bobray Bordelon (email available below). General contact details of provider: https://edirc.repec.org/data/deprius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.