Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience
AbstractThe 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 InfoPaper provided by Public policies and local development in its series Openloc Working Papers with number 1018.
Date of creation: 2010
Date of revision:
Firm clusters; industrial districts; interlinking transactions; resilience; systemic risk;
Other versions of this item:
- Giulio Cainelli & Sandro Montresor & Giuseppe Vittucci Marzetti, 2012. "Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience," Journal of Evolutionary Economics, Springer, vol. 22(4), pages 711-734, September.
- Giulio Cainelli & Sandro Montresor & Giuseppe Vittucci Marzetti, 2010. "Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience," Department of Economics Working Papers 1017, Department of Economics, University of Trento, Italia.
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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"Co-evolution of Firms, Industries and Networks in Space,"
Taylor and Francis Journals, vol. 45(7), pages 919-933.
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- López-Pintado, Dunia, 2008.
"Diffusion in complex social networks,"
Games and Economic Behavior,
Elsevier, vol. 62(2), pages 573-590, March.
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