Optimal Resilience in Multi-Tier Supply Chains

13.05.2024 14:15 – 15:30

GENEVA TRADE AND DEVELOPMENT WORKSHOP

(Jointly with Elhanan Helpman and Alejandro Sabal)

Abstract:

Forward-looking investments determine the resilience of firms' supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in protective capabities, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in resilience. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are non-increasing along the chain.

Short Biography:

Gene M. Grossman is the Jacob Viner Professor of International Economics in the Department of Economics and the Princeton School of Public and International Affairs at Princeton University. Professor Grossman received his B.A. from Yale University and his Ph.D. in Economics from the Massachusetts Institute of Technology, and joined the Princeton faculty immediately thereafter in 1980. He served as Director of Princeton’s International Economics Section from 1999 to 2021 and completed two terms as Chair of Princeton's economics department.

Professor Grossman has received numerous professional honors and awards including the Onassis Prize in International Trade from the Onassis Foundation, the Bernard-Harms Prize from the Kiel Institute for the World Economy and fellowships from the Alfred P. Sloan Foundation and the John Simon Guggenheim Memorial Foundation. He was elected a Fellow of the Econometric Society in 1992, a Fellow of the American Academy of Arts and Sciences in 1997, and a Life Member of the Council on Foreign Relations in 2008, and he holds Honorary Doctorates from the University of St. Gallen and the University of Minho.

Professor Grossman has written extensively on international trade. He is well known for his work on the relationship between trade and growth, and for a pair of widely-cited papers on the likely environmental impacts of the North American Free Trade Agreement and on the relationship between economic growth and the environment. Another branch of Professor Grossman’s research focuses on the political forces that shape modern trade policy. Professor Grossman’s most recent research examines whether government policy should promote safety and resilience in global supply chains.

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Uni Mail
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