Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks
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input-specificity-jean-noel-barrot.pdf
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Author(s)
Sauvagnat, Julien
Barrot, Jean-Noel
Date Issued
May 2016
Journal
Quarterly Journal of Economics
Publisher
Oxford University Press
Citation
Barrot, Jean-Noël and Sauvagnat, Julien. “Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks.” The Quarterly Journal of Economics 131, 3 (May 2016): 1543–1592. © 2016 The Author(s)
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Author's final manuscript
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.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/qje/qjw018
