Joint work with Gaurav Khanna, Nicolas Morales and Nitya Pandalai-Nayar

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We characterize how firms structure supply chains under climate risk. Using new data on the universe of firm-to-firm transactions from an Indian state, we show that firms diversify sourcing locations, and that suppliers exposed to climate risk charge lower prices. We develop a general equilibrium spatial model of firm input sourcing under climate risk. Firms diversify identical inputs from suppliers across space, trading off the probability of climate disruptions against higher input costs. We quantify the model using data on 271 Indian regions. Wages are inversely correlated with sourcing risk, giving rise to a cost minimization-resilience tradeoff. Supply chain diversification unambiguously reduces real wage volatility, but ambiguously affects their levels, as diversification may come with high input costs. While diversification mitigates climate risk, it exacerbates the distributional consequences of climate change by reducing wages in regions prone to frequent shocks.

Joint work with Eugenia Menaguale, Eduardo Morales and Alejandro Sabal.

Slides

We develop a quantitative model in which firms decide where to produce and sell each of their products. Cannibalization forces imply that our model exhibits substitutabilities in the firm’s decision to sell different products in the same destination market; transport costs increasing in distance and increasing returns at the plant-product level imply our model displays complementarities in the firm decision to produce and sell the same model in geographically close markets. We provide a novel solution algorithm for multiple discrete choice single-agent problems where the sign of the interdependence between any pair of choices is known. We estimate our model using our solution method and data on the global car industry with information by firm, country, and car model on production, sales, and prices. We evaluate the effect of recently proposed production subsidies, consumption subsidies, and tariffs on the global structure of automobile production and prices and access to car varieties across countries.

Joint work with Benny Kleinman

Revise and Resubmit, Journal of Political Economy

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We explore how the labor share relates to the price of materials in the economy. Under imperfect competition and complementarity between materials and primary inputs, a higher price of materials lowers the labor share and raises the profit share, without requiring markups to change. We show that fluctuations in materials prices align with trends in the U.S. labor share, including a sharp decline during the 2000s commodity boom; provide causal evidence for this mechanism across industries and commuting zones; and quantify its importance using an input-output general equilibrium model. Finally, we use our mechanism to rationalize differential trends across countries.

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Climate change will intensify natural disasters, potentially impacting firms’ spatial organization. Using global car industry data and an event-study design, I demonstrate floods reduce plant production, prompting firms to reallocate to unaffected plants. I develop a novel, quantitative, multiregion model where firms choose plant locations and capacities to maximize expected profits amidst local disruption risks, capturing incentives for location diversification and disruption hedging. Using this model, plant location and capacity choices are computed under varying weather disruption probabilities from climate scenarios. With heightened risks, firms build additional, smaller plants with larger spare capacities, causing productivity losses and higher consumer prices.

Joint work with Alonso Alfaro-Ureña, Sebastian Fanelli and Eduardo Morales.

Revise and Resubmit, American Economic Review

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We estimate a model of firm export dynamics featuring cross-country complementarities. The firm decides where to export by solving a dynamic combinatorial discrete choice problem, for which we develop a solution algorithm that overcomes the computational challenges inherent to the large dimensionality of its state space and choice set. According to our estimated model, firms enjoy cost reductions when exporting to countries geographically or linguistically close to each other, or that share deep trade agreements. Countries, especially small ones, sharing these traits with attractive destinations receive significantly more exports than in the absence of complementarities.

Joint work with Paula Bustos, Joan Monras and Jacopo Ponticelli.

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