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Are Supply Networks Efficiently Resilient? / Agostino Capponi, Chuan Du, Joseph E. Stiglitz.
- Format:
- Book
- Author/Creator:
- Capponi, Agostino.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32221.
- NBER working paper series no. w32221
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can expand their production capacity to hedge against supply and demand shocks. But the social benefits of such investments are not internalized due to market power and market incompleteness. Upstream firms under-invest in capacity and resilience, passing-on the costs to down-stream firms, and drive trade excessively towards the spot markets. There is a wedge between the market solution and a constrained optimal benchmark, which persists even without rare and large shocks. Policies designed to incentivize capacity investment, reduce reliance on spot markets, and enhance competition ameliorate the externality.
- Notes:
- Print version record
- March 2024.
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