Financial Fragility in a Network of Trade Credit

From the collection Trade

The physicist Sorin Solomon begins to feel dizzy when the economist Leanne Ussher talks econ lingo. Yet he listens, because the two of them have found a productive area of collaboration: some economic phenomena, they find, can be explained without recourse to the quirks that feed into human decision making. Sometimes, they say, we can model people as if they were particles, and explore consequences of the social structure that constrains their possible actions. Ussher and Solomon set up a model of Italian industry, stock-flow consistent and grounded in firm-level data on trade credits, to trace out the relation between network structure and financial fragility — this is new economic thinking.

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