Working Papers

Inventories, Diversification, and Supply-Chain Resilience

[+] Abstract : Supply-chain disruptions are becoming increasingly frequent and severe. To mitigate their vulnerability to these shocks, firms often resort to input stockpiling and supply source diversification. In this paper, I propose a theory where firms choose how many suppliers to source from and how much inventory to hold to maximize expected profits under supply uncertainty. Diversifying supply sources reduces the variance of supply disruptions but involves sunk costs, while inventories reduce the variance of input availability and involve linear costs. I test the key predictions of the model using a comprehensive panel of French manufacturing firms. First, inventories and diversification are substitutes: there is a negative correlation between the inventory ratio -- the fraction of inputs held in inventory -- and diversification. Second, smaller firms tend to hold more inventory and diversify less, whereas larger firms hold fewer inventories and diversify more. I calibrate the model to examine how inventories help buffer supply shocks and assess the extent to which both strategies enhance firm performance. I conclude with an exercise on the cost-efficiency of stockpiling and sourcing diversification. Investing in inventories appears to be more cost-effective than increasing supplier diversification.

Ambient Density and Urban Crime: Evidence from Smartphone Data with Vincent Rollet

[Slides]

[+] Abstract : Ambient density --- the number of people in a given area at a given time --- is often hypothesized to be an important determinant of urban safety. However, there has been limited empirical evidence to support this claim due to the difficulty of measuring the movement of ordinary citizens. With smartphone location data, we measure ambient density in Chicago neighborhoods and estimate its effect on crime rates. Using a shift-share instrument and temporary transit station closures for identification, we show that crime rates fall when ambient density increases. We find that the beneficial effects of density are strongest in low and medium-density neighborhoods, which suggests that policies spreading people over space are likely to reduce crime. Finally, we show how the development of work-from-home is likely to affect crime rates in different neighborhoods of Chicago.

Reorganizing Global Supply-Chains: Who, What, How, and Where with Gabriel Baratte and Lionel Fontagné

[Banque de France Working Paper n969] [Insee Working Paper n2024-24] [4-pages summary in French]

[+] Abstract : In an increasingly uncertain environment, firms are differently exposed to shocks and may or may not bear the cost of reorganizing their value chain by reshoring or offshoring. This paper draws on a survey of French firms about the decision to reorganize part of their value chain between January 2018 and December 2020. Reorganizations prove to be infrequent, made by firms employing a higher proportion of skilled workers, in manufacturing rather than in services, with a predominance of multinational firms. Even though high-skill firms are reorganizing more, reorganized business functions are less skill-intensive and more intensive in routine tasks. Activities more intensive in intangible capital are more likely to be reorganized within firm's boundaries. Last, besides reshoring in France, activities are located close to France when offshored. India, combining low-average wage and a large endowment of high-skilled workers, receives a disproportionate share of skill-intensive activities.

Energy Cost Pass-Through and the Rise of Inflation: Evidence from French Manufacturing Firms with Julien Martin and Isabelle Mejean

[CEPR Discussion Paper 18596] [Latest slides] [Supersedes 'Cost Pass-Through and the Rise of Inflation']

[+] Abstract : This paper presents micro evidence on energy price shock transmission to producer prices. We analyze microdata from the French Producer Price Index (PPI) and firms' energy usage. Firms fully pass on positive energy-driven cost shocks to prices but respond more modestly to cost reductions. Despite full pass-through of positive shocks, the recent energy price surge only moderately impacted manufacturing inflation, accounting for approximately 10% of total PPI growth between 2021 and 2022. This limited effect results from the relatively small share of energy in firms' variable costs. The average impact masks significant variations, primarily within industries.

Work in Progress

Spatial Comovements with Swann Chelly and Isabelle Mejean

[+] Abstract : This paper investigates how industrial specialization and production networks shape local business cycle fluctuations. Using detailed plant-level sales data from the French manufacturing sector (2011–2021), we first document significant heterogeneity in local business cycles. We show that this heterogeneity is driven by industrial specialization, which increases exposure to sector-specific shocks, and by input-output linkages, which propagate these shocks across regions and synchronize local fluctuations. We find that nearly 3\% of business cycle synchronization across commuting zones is attributable to input-output linkages. Next, we deepen our analysis of input-output linkages by leveraging firm-to-firm production data from two comprehensive supplier surveys in the French aerospace and automotive industries. Our findings indicate that 4.4\% and 7.6\% of shocks affecting downstream manufacturers are transmitted upstream to their suppliers. Moreover, we find that suppliers tend to cluster near downstream manufacturers, with those more exposed also being geographically closer. This implies that the propagation of shock through IO linkages will be spatially biased. As a result, aggregate fluctuations driven by shocks in the aerospace and automotive industries are amplified by 18\% and 20\%, respectively, through production linkages.

Publications

Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China with Julien Martin and Isabelle Mejean , IMF Economic Review 71(1): 170--215, 2023

[CEPR Discussion Paper 16813] [VoxEU Summary] [Video at IMF ARC (44:30)]

[+] Abstract : How do firms in global value chains react to input shortages? We examine micro-level adjustments to supply chain shocks, building on the COVID-19 pandemic as a case study. French firms sourcing inputs from China just before the early lockdown in the country experienced a relative drop in imports that increases from February to April 2020. This shock on input purchases transmits to the rest of the supply chain through exposed firms' domestic and export sales. Between February and June, firms exposed to the Chinese early lockdown experienced a 5.5% drop in domestic sales and a 5% drop in exports, in relative terms with respect to comparable non-exposed firms. The drop in foreign sales is entirely attributable to a lower volume of exports driven by a temporary withdrawal from occasional markets. We then dig into the heterogeneity of the transmission across treated firms. Whereas the ex-ante geographic diversification of inputs does not seem to mitigate the impact of the shock, firms with relatively high inventories have been able to absorb the supply shock better.