We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Due to the risk of such supply relationships being idiosyncratically disrupted, firms multisource inputs and strategically invest to make relationships with suppliers stronger. Aggregate production is robust to idiosyncratic disruptions. However , there is a regime in which equilibrium supply networks are fragile, with small aggregate shocks to relationships causing arbitrarily steep drops in output  . The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks.
We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. We find that equilibrium aggregate production is robust to idiosyncratic disruptions. Nevertheless , there is a regime in which arbitrarily small systemic shocks cause arbitrarily steep drops in output , so that the the supply network is fragile . The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks.
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Due to the risk of such supply relationships being idiosyncratically disrupted,
Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this,
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with suppliers stronger. Aggregate
stronger, trading off the cost of investment against the benefits of increased robustness. We find that equilibrium aggregate
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However
Nevertheless
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equilibrium supply networks are fragile, with small aggregate shocks to relationships causing
arbitrarily small systemic shocks cause
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, so that the the supply network is fragile