Networks and Economic Fragility

Benjamin Golub () and Matthew Elliott
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Benjamin Golub: Department of Economics, Northwestern University, Evanston, Illinois, USA
Matthew Elliott: Faculty of Economics, University of Cambridge, Cambridge, United Kingdom

Annual Review of Economics, 2022, vol. 14, issue 1, 665-696

Abstract: Many firms, banks, or other economic agents embedded in a network of codependencies may experience a contemporaneous, sharp drop in functionality or productivity following a shock—even if that shock is localized or moderate in magnitude. We offer an extended review of motivating evidence that such fragility is a live concern in supply networks and in financial systems. We then discuss network models of fragility, focusing on the forces that make aggregate functionality especially sensitive to the economic environment. The key structural features of networks that determine their fragility are reviewed, with an emphasis on the importance of phase transitions. We then turn to endogenous decisions, both by market participants (e.g., firms investing in network formation and robustness) and by planners (e.g., authorities undertaking macroprudential regulation). Fragility has some distinctive implications for such decisions.

Keywords: supply chains; production networks; supply disruptions; networks; fragility; robustness (search for similar items in EconPapers)
JEL-codes: D85 E23 L14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (17)

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DOI: 10.1146/annurev-economics-051520-021647

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