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

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.