Distress propagation on production networks: Coarse-graining and modularity of linkages

Kumar, Ashish, Chakrabarti, Anindya S., Chakraborti, Anirban and Nandi, Tushar (2021) Distress propagation on production networks: Coarse-graining and modularity of linkages. Physica A: Statistical Mechanics and its Applications, 568: 125714. ISSN 3784371

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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 among individual agents (microscopic), among firms/sectors (mesoscopic) or among countries (macroscopic). New emergent dynamical properties appear at every level, so the granularity matters. For viral epidemics, even an individual node may act as an epicenter of distress and potentially affect the entire network. Economic networks, however, are known to be immune at the micro-levels and more prone to failure in the meso/macro-levels. We propose a dynamical interaction model to characterize the mechanism of distress propagation, across different modules of a network, initiated at different epicenters. Vulnerable modules often lead to large degrees of destabilization. We demonstrate our methodology using a unique empirical data-set of input–output linkages across 0.14 million firms in one administrative state of India, a developing economy. The network has multiple hub-and-spoke structures that exhibits moderate disassortativity, which varies with the level of coarse-graining. The novelty lies in characterizing the production network at different levels of granularity or modularity, and finding ‘too-big-to-fail’ modules supersede ‘too-central-to-fail’ modules in distress propagation.

Item Type: Article
Keywords: Coarse-graining | Modularity | Networks | Shock diffusion
Subjects: Social Sciences and humanities > Economics, Econometrics and Finance > Econometrics
Physical, Life and Health Sciences > Computer Science
JGU School/Centre: Jindal School of Government and Public Policy
Depositing User: Mr. Syed Anas
Date Deposited: 11 Dec 2021 16:20
Last Modified: 11 Dec 2021 18:52
Official URL: https://doi.org/10.1016/j.physa.2020.125714
Additional Information: We are thankful to the Directorate of Commercial Taxes of West Bengal, India for the permission to use their data. This research was supported in part by the International Centre for Theoretical Sciences (ICTS), India during a visit for AC and AK participating in the summer research program on Dynamics of Complex Systems (Code: ICTS/Prog-DCS2019/07). ASC acknowledges the R&P grant, India, IIM Ahmedabad for partial support of this research. The authors have benefited from discussions with Sugata Marjit, Jyotsna Jalan, Sanjay Moorjani, Shekhar Tomar and Abinash Mishra. Supplementary material related to this article can be found online at https://doi.org/10.1016/j.physa.2020.125714.
URI: https://pure.jgu.edu.in/id/eprint/141


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