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Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience

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  • Giulio Cainelli

    ()

  • Sandro Montresor

    ()

  • Giuseppe Vittucci Marzetti

    ()

Abstract

The paper analyzes how (production and financial) inter-firm networks can affect firms’ default probabilities and observed default rates: an issue the recent crisis has brought to the front of the debate. A simple theoretical model of shock transfer is built up to investigate some stylized facts on how firm-idiosyncratic shocks tend to be allocated in the network, and how this allocation changes firms’ default probability. The model shows that the network works as a perfect “risk-pooling” mechanism, when it is both strongly connected and symmetric. But the resort to “risk-sharing” does not necessarily reduce default rates in the network, unless the shock they face is lower on average than their financial capacity. Conceived as cases of symmetric inter-firm networks, industrial districts might have a comparative disadvantage in front of “heavy” financial crises such as the current one.

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 1017.

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Date of creation: 2010
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Handle: RePEc:trn:utwpde:1017

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Keywords: Firm clusters; industrial districts; interlinking transactions; resilience; systemic risk;

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References

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Cited by:
  1. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  2. Reinhart, Carmen M. & Rogoff, Kenneth S., 2008. "Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison," Scholarly Articles 11129156, Harvard University Department of Economics.
  3. Giulio Cainelli & Sandro Montresor & Giuseppe Vittucci Marzetti, 2014. "Spatial agglomeration and firm exit: a spatial dynamic analysis for Italian provinces," Small Business Economics, Springer, Springer, vol. 43(1), pages 213-228, June.
  4. Roberto Antonietti & Giulio Cainelli & Monica Ferrari & Stefania Tomasini, 2014. "Banks, industrial relatedness and firms’ investments," Papers in Evolutionary Economic Geography (PEEG), Utrecht University, Section of Economic Geography 1402, Utrecht University, Section of Economic Geography, revised Jan 2014.

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