Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks*

2016/05/03 by Jean-Noël Barrot, Julien Sauvagnat · 17 citations
Economics, Econometrics and Finance · Agricultural and Biological Sciences · #Insurance and Financial Risk Management #Banking stability, regulation, efficiency #Agricultural risk and resilience

paper · doi:10.1093/qje/qjw018

Abstract

Abstract 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.

Citations

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