Articles

Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks

J.-N. BARROT, J. SAUVAGNAT

Quarterly Journal of Economics

August 2016, vol. 131, n°3, pp.1543-1592

Departments: Finance

Keywords: E23 - Production E32 - Business Fluctuations; Cycles L14 - Transactional Relationships; Contracts and Reputation; Networks

https://academic.oup.com/qje/article-abstract/131/3/1543/2461213?redirectedFrom=fulltext


This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy


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