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The Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion

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Author Info

  • Mauro Gallegati
  • Bruce Greenwald
  • Matteo Richiardi
  • Joseph Stiglitz

Abstract

We provide a general characterization of diffusion processes, allowing to analyze both risk-sharing and contagion at the same time. We show that interdependencies are beneficial when the economic environment is favorable, and detrimental when the economic environment deteriorates. The risk of contagion increases the volatility of outcome and thus reduces the ability of the network to provide risk-sharing.

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Bibliographic Info

Paper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 71.

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Date of creation: 2007
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Handle: RePEc:cca:wplabo:71

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Keywords: Risk-sharing; Contagion; Networks.;

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Cited by:
  1. Giulio Cainelli & Sandro Montresor & Giuseppe Vittucci Marzetti, 2010. "Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience," Openloc Working Papers 1018, Public policies and local development.
  2. David Rooney & Tom Mandeville & Tim Kastelle, 2013. "Abstract Knowledge and Reified Financial Innovation: Building Wisdom and Ethics Into Financial Innovation Networks," Journal of Business Ethics, Springer, vol. 118(3), pages 447-459, December.
  3. Joseph E. Stiglitz, 2013. "Stable Growth in an Era of Crises; Learning from Economic Theory and History," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 1-39, January.
  4. Joseph E Stiglitz & Mauro Gallegati, 2011. "Heterogeneous Interacting Agent Models for Understanding Monetary Economies," Eastern Economic Journal, Palgrave Macmillan, vol. 37(1), pages 6-12.
  5. Soete, Luc, 2009. "Malthus' Revenge," MERIT Working Papers 030, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  6. Joseph E. Stiglitz, 2010. "Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable," NBER Working Papers 15718, National Bureau of Economic Research, Inc.
  7. Nuno Silva, 2010. "Inter-Sector Relations in the Portuguese Economy: an Application of Contingent," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  8. Stiglitz Joseph E., 2010. "Contagion, Liberalization, and the Optimal Structure of Globalization," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-47, December.
  9. Joseph E. Stiglitz, 2011. "Rethinking Macroeconomics: What Failed, And How To Repair It," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 591-645, 08.
  10. Naude, Wim, 2009. "The Global Economic Crisis after One Year: Is a New Paradigm for Recovery in Developing Countries Emerging?," Working Paper Series UNU-WIDER UNU Policy Brie, World Institute for Development Economic Research (UNU-WIDER).

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