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

The paper analyzes how (production and financial) inter-firmnetworks can affect firms’ default probabilities and observed defaultrates. A simple theoretical model of shock transfer is built toinvestigate some stylized facts on how firm-idiosyncratic shocks areallocated in the network, and how this allocation changes firmdefault probabilities. The model shows that the network works as aperfect “risk-pooling” mechanism, when it is both strongly connectedand symmetric. But the “risk-sharing” does not necessarily reducedefault rates, unless the shock firms face is lower on average thantheir financial capacity. Conceived as cases of symmetric inter-firmnetworks, industrial districts might have a comparativedisadvantage in front of heavy crises.