The Macroeconomics of Supply Chain Disruptions.

This article develops a general equilibrium model to analyze the macroeconomic effects of supply chain disruptions, focusing on three key features: (i) a firm-level network of customized supplier–customer relationships that generate relationship-specific productivity gains; (ii) bargaining over the surplus created by these relationships via pairwise Nash bargaining; and (iii) an extensive margin where firms decide endogenously to form or sever supplier–customer links. The model establishes equilibrium existence and uniqueness for given production networks, characterizes firms’ profits in terms of their marginal contributions to aggregate productivity (akin to the Myerson value), and shows that equilibrium supply chains are inefficient and inherently fragile. This fragility implies that small shocks can cause discontinuous and sizable drops in aggregate output due to firms’ underinvestment in maintaining relationships, contrasting with the continuous response of the efficient allocation. The paper further explores macroeconomic implications, including trade-offs between supply chain fragmentation and resilience, cascading breakdowns amplifying shocks, and nonlinear amplification of business cycle fluctuations driven by endogenous supply chain adjustments.