Dresden 2006 – scientific programme
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AKSOE: Physik sozio-ökonomischer Systeme
AKSOE 4: Social-, Information-, and Production Networks I
AKSOE 4.2: Talk
Monday, March 27, 2006, 16:30–17:00, BAR 205
Credit Chains and Bankruptcies Avalanches in Production Networks — •Stefano Battiston1, Domenico Delli Gatti2, Mauro Gallegati3, Bruce Greenwald4, and Joseph E. Stiglitz4 — 1Chair of Systems Design, ETH Zurich, CH-8092 Zurich, Switzerland — 2Univ. Cattolica, Milan, Italy — 3Univ. Polit. d.le Marche, Ancona, Italy — 4Columbia University, New York, USA
We present a simple model of failure propagation on a network of firms linked by supply-customer relationships and trade credit relationships. Our aim is to identify the minimal ingredients to simultaneously produce on one hand the main facts of firm demography (like broad distribution of firm size) and, on the other hand, some occasional spontaneous avalanches of defaults accompanied by sudden drops of the total output of the economy. As opposed to previous models in which there is no firm-firm interaction and avalanches result from a global coupling through interest rate and alike, here avalanches are due to the dependence of the output of each firm on delivery from suppliers and payments from customers. In the simplest version of the model, the network has a regular and static structure, but we also investigate which structures are more robust against domino effects and which ones emerge spontaneously in a network evolution. We also discuss under which conditions the system is susceptible to self-organize in a critical state in which small perturbations trigger re-adjustments of trade credit relationships on a long range.