Working Paper: NBER ID: w27565
Authors: Daron Acemoglu; Alireza Tahbazsalehi
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.
Keywords: firm failures; supply chain disruptions; macroeconomics; productivity shocks
JEL Codes: D57; E23; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm Failure (G33) | Supplier Failure (L14) |
| Firm Failure (G33) | Customer Failure (D19) |
| Productivity Changes (O49) | Surplus Distribution (D39) |
| Surplus Distribution (D39) | Firm Failure (G33) |
| Negative Shocks (E32) | Firm Exit (L19) |