Related papers: Rigidity and default in production networks
How does supply uncertainty affect the structure of supply chain networks? To answer this question we consider a setting where retailers and suppliers must establish a costly relationship with each other prior to engaging in trade.…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…
We show that, in a market economy, the aggregate production level depends not only on the aggregate variables but also on the distribution of individual characteristics (e.g., productivity, credit limit, ...). We prove that, due to…
We introduce heterogeneous R&D productivities into an endogenous R&D network formation model, generalizing the framework of Goyal and Moraga-Gonz\'alez (2001). Heterogeneous productivities endogenously create asymmetric gains from…
It was recently recognized that interdependencies among different networks can play a crucial role in triggering cascading failures and hence system-wide disasters. A recent model shows how pairs of interdependent networks can exhibit an…
Distress propagation occurs in connected networks, its rate and extent being dependent on network topology. To study this, we choose economic production networks as a paradigm. An economic network can be examined at many levels: linkages…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
National economies rest on networks of millions of customer-supplier relations. Some companies -- in the case of their default -- can trigger significant cascades of shock in the supply-chain network and are thus systemically risky. Up to…
This paper investigates how productivity dispersion relates to input misallocation in European manufacturing. The model features staggered productivity shocks that create wedges between anticipated and realized productivity for any…
We compare two models of corporate default by calculating the Jeffreys-Kullback-Leibler divergence between their predicted default probabilities when asset correlations are either high or low. Our main results show that the divergence…
During the last two years, Europe has been facing a debt crisis, and Greece has been at its center. In response to the crisis, drastic actions have been taken, including the halving of Greek debt. Policy makers acted because interest rates…
Current network models assume one type of links to define the relations between the network entities. However, many real networks can only be correctly described using two different types of relations. Connectivity links that enable the…
Supply chain disruptions cause shortages of raw material and products. To increase resilience, i.e., the ability to cope with shocks, substituting goods in established supply chains can become an effective alternative to creating new…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…
Physical risks, such as droughts, floods, rising temperatures, earthquakes, infrastructure failures, and geopolitical conflicts, can ripple through global supply chains, raising costs, and constraining production across industries.…
We analyze how interdependencies between organizations in financial networks can lead to multiple possible equilibrium outcomes. A multiplicity arises if and only if there exists a certain type of dependency cycle in the network that allows…
Solomon and Golo [1] have recently proposed an autocatalytic (self-reinforcing) feedback model which couples a macroscopic system parameter (the interest rate), a microscopic parameter that measures the distribution of the states of the…
Financial networks are characterized by complex structures of mutual obligations. These obligations are fulfilled entirely or in part (when defaults occur) via a mechanism called clearing, which determines a set of payments that settle the…
We model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network…