Wednesday 12 November 2025 11:00 - 12:00

SAL 1.04, 1st Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH

About this event

Recent supply chain disruptions have intensified debates over reshoring versus diversification, yet existing theories struggle to explain why downstream firms publicly restructure while upstream suppliers remain silent. This paper develops a theory where firm boundaries emerge from operational risk and production technology alone, without invoking transaction costs or incomplete contracts. When sequential production faces Poisson failures and firms exhibit decreasing returns to scope, three mechanisms shape boundaries: restart costs from failures, organizational constraints, and a counterintuitive "variance benefit" where convex costs create option value from early exit. The framework generates non-monotonic integration patterns—moderate operational risk can encourage longer production runs—and reveals why downstream firms are disproportionately vulnerable through compounding input cost effects. Free entry endogenously segments the production chain into specialized firms despite ex-ante homogeneity. These results provide fresh perspective on global value chain resilience, suggesting that optimal responses to supply chain risk depend critically on firms' positions within production networks rather than following universal prescriptions.

Participants are expected to adhere to the CEP Events Code of Conduct.

Directions

This event will take place in SAL 1.04, 1st Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.

International Economics Workshops are part of the CEP's Trade programme.