Francesca Musella
Shocks and Defaults in Production Networks: a Theoretical and Simulation-Based Analysis.
Rel. Giacomo Como, Fabio Fagnani. Politecnico di Torino, Corso di laurea magistrale in Ingegneria Matematica, 2025
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Abstract
Modern economies are highly interconnected, as shocks in one sector can spill over across the entire network, generating aggregate fluctuations and increasing the systemic risk. In theory, such shocks would be less disruptive if industries could instantly adjust their decisions, optimizing their profits and avoiding defaults. In practice, however, production and investment choices cannot be costlessly or immediately adapted. This thesis analyzes an economic equilibrium model in which firms make rigid, state-independent decisions prior to the realization of shocks, under imperfect information. In the considered model, firms rely partly on external debts financed by a bank and aim to maximize their conditional expected profit.
In this context, a unique rigid Walrasian equilibrium can be proven to exist, whereby defaults occur when equilibrium profit realizations are negative and loans remain partly unpaid
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