Profits as an Inter-sectoral Consequence of Disequilibrium in a Production Network
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We study the inter-sectoral consequences of a general disequilibrium in a global production network in which each sector’s output is used as an input for others. We find that the presence of excess demand in any single sector implies positive profits for all others that use the constrained good as an input. As a corollary, in a general disequilibrium in which more than one market is stuck with excess demand, with other sectors being clear in this respect, everyone enjoys positive profits. By implication, the paradoxical results derived from a model of interdependence associate a higher chance of excess demand with an overall rise in profit levels during booms, thereby reprising the Keynesian sense of effective demand-driven business cycles.
Abstract
We study the inter-sectoral consequences of a general disequilibrium in a global production network in which each sector’s output is used as an input for others. We find that the presence of excess demand in any single sector implies positive profits for all others that use the constrained good as an input. As a corollary, in a general disequilibrium in which more than one market is stuck with excess demand, with other sectors being clear in this respect, everyone enjoys positive profits. By implication, the paradoxical results derived from a model of interdependence associate a higher chance of excess demand with an overall rise in profit levels during booms, thereby reprising the Keynesian sense of effective demand-driven business cycles.
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