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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 Public policies and local development in its series Openloc Working Papers with number 1018.

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Date of creation: 2010
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Handle: RePEc:trn:utwpol:1018

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

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References

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Citations

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Cited by:
  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  2. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, 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, 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) 1402, Utrecht University, Section of Economic Geography, revised Jan 2014.

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