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

  • Giulio Cainelli
  • Sandro Montresor
  • Giuseppe Vittucci Marzetti

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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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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