Pablo D. Azar
MIT Economics Department
50 Ames Street, E19-750
Cambridge, MA, 02139
NBER Working Papers and Publications
|December 2017||Endogenous Production Networks|
with Daron Acemoglu: w24116
We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity. Markets are “contestable” in the sense that production technologies are available to a large number of potential producers. We establish the existence and uniqueness of an equilibrium with an endogenous production network and provide comparative static results on how prices and endogenous technology choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input-output linkages and reduce all...