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

Giulio Cainelli (), Sandro Montresor () and Giuseppe Vittucci Marzetti

No 1017, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

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.

Keywords: Firm clusters; industrial districts; interlinking transactions; resilience; systemic risk (search for similar items in EconPapers)
JEL-codes: G20 R11 R12 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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Related works:
Chapter: Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience (2013)
Journal Article: Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience (2012)
Working Paper: Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience (2010)
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