cover image: CIGS Working Paper Series No. 24-003E


CIGS Working Paper Series No. 24-003E

11 Mar 2024

The rise in transportation costs reduces the number of profitable shipments and curtails the volume of shipped goods, leading to a fall in the supply of goods available to retailers as well as increasing the spare capacity for producers. [...] The core of the section is the motivation behind using port congestion as the measure of global supply chain disruptions and the presentation of the algorithm that accomplishes such a goal. [...] Given that l is supplied inelastically by the household and that the household is the owner of all the firms in the economy, we normalize the wage to zero, i.e., the household receives the income from the match entirely as profits and not as a combination of profits and wages. [...] (8) The retailer earns the price p by reselling each unit of the purchased goods to the households and pays the corresponding wholesale price r(z) to the producer. [...] As the price decreases and the profits from sales to the 24To save space, we relegate the discussion of the case with a lower matching efficiency to Appendix D.9, since the reasoning closely aligns with the scenario involving higher transportation costs.
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