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Faculty of Economics

Embedded Markets and the Economy (EMBED)

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Title: Embedded Markets and the Economy (EMBED)

Sponsor: European Research Council (ERC), Starting Grant

Description: The purpose of EMBED is to improve our understanding of how business relationships impact key economic outcomes. A large literature spanning disciplines establishes that business relationships play an important role in economic activity and affect how markets function. EMBED seeks to enhance our understanding of this at the micro-level in order to increase our awareness of the economic effect of such relationships at the macro level. These are broad issues and many questions arise from them. For example, will businesses form individual supply relationships that combine to yield robust supply chains, or will supply chains be a source of amplification for shocks? Do shocks create a loss of social capital that is hard to replace and inhibits the recovery of economies? What frictions in markets do business relationships help overcome? Are investments in business relationships likely to be efficient---and if not what are the sources of the inefficiencies? Does information and knowledge transfer through business relationships, and if so what are the aggregate implications of this? Do business’ positions in a network of supply relationships confer market power on them? Is there a way to look at this network and infer which businesses have market power? And so on. Understanding these issues is important and can have wide ranging policy implications. They can suggest actions that might help more robust supply networks to form, help target interventions when businesses are struggling (as in the current crisis) and suggest markets worth the attention of antitrust authorities, among many others.

COVID-19 related work
Which firms that are essential for ensuring the production of crucial goods and services in times of pandemics?
Vasco Carvalho, John Spray and Matt Elliott take a supply chain network view on this and argue that business-to-business transaction data + economic theory can help locate "bottleneck" firms: firms which, directly or indirectly, ensure final production meets demand for key goods (e.g. ventilators) and services in the economy. We also offer a proof of concept based on such data for a developing country. Out here. A short presentation on this can be viewed here.

Can robust supply chains be expected to form, and what are the implications for macroeconomy?
Ben Golub, Matt Leduc and Matt Elliott have a new paper showing that business' investments in their supply chain, like the extent of multisourcing they do, have a tendency to make supply chains fragile. Ben tweets about the paper and some of the implications for better understanding the impact of COVID-19 on the economy here. The paper is here

Principal Investigator

Professor Matthew Elliott

Project Administrator

Eliza Preece

Published Papers

Chen, J., Elliott, M. and Koh, A. Capability Accumulation and Conglomeratization in the Information Age, (2023) Journal of Economic Theory, accepted
Elliott, M., Georg, C-P. and Hazell, J. Systemic Risk Shifting in Financial Networks, (2021) Journal of Economic Theory
Ambrus, A. and Elliott, M. Investments in Social Ties, Risk Sharing, and Inequality , (2021) Review of Economic Studies
Agranov, M. and Elliott, M. Commitment and (in) Efficiency: A Bargaining Experiment, (2021) Journal of the European Economic Association
Elliott, M., and Galeotti, A. The Role of Networks in Antitrust Investigations, (2019) Oxford Review of Economic Policy
Elliott, M., Goyal, S. and Teytelboym, A. Networks and Economic Policy, (2019) Oxford Review of Economic Policy

Cambridge Working Papers in Economics

Elliott, M., Golub, B., Leduc, M. V. Corporate Culture and Organizational Fragility, (2023) CWPE2314
Elliott, M., Galeotti, A., Koh, A., Li, W. Matching and Information Design in Marketplaces, (2023) CWPE2313
Boa, I., Elliott, M., Foster, D. A Capability Approach to Merger Review, (2023) CWPE2312
Spray, J. Search Externalities in Firm-to-Firm Trade, (2021) CWPE2108
Elliott, M., Galeotti., A., Koh., A, and Li, W. Market Segmentation Through Information, (2021) CWPE2105

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Related Tags:




Market Transactions

Social Relationships