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Aggregate fluctuations in adaptive production networks


König, Michael D (2016). Aggregate fluctuations in adaptive production networks. Working paper series / Department of Economics 240, University of Zurich.

Abstract

We study production networks where firms’ products can be described by a set of input and output characteristics, and links are formed only if the output characteristics of a seller match the input characteristics of a customer. We introduce a fully endogenous network formation model with monopolistically competitive firms, in which firms exit due to exogenous shocks, or the propagation of shocks through the network. Firms can replace suppliers they have lost due to exit subject to switching costs and search frictions. This enables us to study the impact of shocks on aggregate production in an adaptive network, and we show that depending on the nature of the shocks, adaptivity can make the network more or less stable.

Abstract

We study production networks where firms’ products can be described by a set of input and output characteristics, and links are formed only if the output characteristics of a seller match the input characteristics of a customer. We introduce a fully endogenous network formation model with monopolistically competitive firms, in which firms exit due to exogenous shocks, or the propagation of shocks through the network. Firms can replace suppliers they have lost due to exit subject to switching costs and search frictions. This enables us to study the impact of shocks on aggregate production in an adaptive network, and we show that depending on the nature of the shocks, adaptivity can make the network more or less stable.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D85, L24, O33
Uncontrolled Keywords:Production networks, shocks, supply chains, resilience, aggregate fluctuations
Language:English
Date:December 2016
Deposited On:13 Dec 2016 16:47
Last Modified:07 Apr 2017 05:11
Series Name:Working paper series / Department of Economics
Number of Pages:52
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp240.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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