Network structure of production

Abstract

Complex social networks have received increasing attention from researchers. Recent work has focused on mechanisms that produce scale-free networks. We theoretically and empirically characterize the buyer–supplier network of the US economy and find that purely scale-free models have trouble matching key attributes of the network. We construct an alternative model that incorporates realistic features of firms’ buyer–supplier relationships and estimate the model’s parameters using microdata on firms’ self-reported customers. This alternative framework is better able to match the attributes of the actual economic network and aids in further understanding several important economic phenomena.