Endogenous network formation; Production networks; Finance; Economics and Econometrics
Abstract :
[en] We develop a model of endogenous production networks with fixed costs in the formation of links between firms. We show that the closed economy equilibrium is unique if the set of feasible networks consists only of networks that are acyclic and the buyer initiates the link formation while having full bargaining power in price negotiations with the supplier. We provide examples of multiple equilibria if the supplier initiates the link formation in both cyclic and acyclic feasible networks or if the buyer initiates the link formation in a cyclic production network. We take the acyclic production network model to Belgian data on firm-to-firm production networks and show that it matches well the salient features of the network. The model generates substantial churn in domestic firm-to-firm linkages in response to trade shocks, while delivering only moderately different welfare changes compared to a model with fixed linkages.
Disciplines :
International economics
Author, co-author :
Dhyne, Emmanuël ; Université de Mons - UMONS > Faculté Warocqué d'Economie et de Gesti > Service d'Economie ; Banque Nationale de Belgique
Kikkawa, Ayumu Ken; Sauder School of Business, UBC, Canada ; NBER, United States
Kong, Xianglong; University of Chicago, United States
Mogstad, Magne; University of Chicago, United States ; NBER, United States
Tintelnot, Felix; University of Chicago, United States ; NBER, United States
R250 - Institut de recherche pour le Développement sociétal et territorial
Funding text :
☆ We are grateful to two anonymous referees, the editor (Cecile Gaubert), Costas Arkolakis, David Baqaee, Magnus Tolum Buus, Jonathan Eaton, Emmanuel Farhi, Teresa Fort, Matthew Grant, Basile Grassi, Keith Head, Oleg Itskhoki, Rob Johnson, Harry Li, Alejandra Lopez Espino, Ferdinando Monte, Yuhei Miyauchi, Andrei Nagornyi, Ezra Oberfield, and Alireza Tahbaz-Salehi for useful comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the National Bank of Belgium or any other institution with which one of the authors is affiliated. The model presented in this paper is a substantially revised version of the one circulated in the NBER working paper #25120 entitled “Trade and Domestic Production Networks”.
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