Comment on “Rigid Production Networks” by Pellet and Tahbaz-Salehi

Pellet and Tahbaz-Salehi (2023) studies the aggregate implications of informational frictions in an input-output production network. Firms combine rigid inputs—which must be chosen under incomplete information about the state of the economy—with flexible ones—which can be fully contingent on the state. At the optimum, they choose to rely more heavily on the latter, substituting away from the former. In the aggregate, incomplete information dampens the impact of productivity and demand shocks, and it makes positive demand shocks more inflationary. I discuss the implications of efficiency of equilibrium allocations for Hulten’s theorem and for the welfare effects of more accurate information. Finally, I argue that capital is a rigid input, thus, it is appropriate to calibrate the model using the input-output network for capital. Such a network differs substantially from the intermediate-inputs one.