SUP-CHAIN-DIS - SUPPLY CHAIN DISRUPTIONS, FINANCIAL LOSSES AND THEIR PREVENTION
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Recent international events such as the diffusion of Covid-19 and the consequent lockdowns as well as the war between Russia and Ukraine are having important consequences on industrial production in several sectors, putting its resilience in danger. The crisis originated in the real sector, namely, in the production of goods, and has spilled over to the financial sector, namely, to the production of financial services from banks and other intermediaries. The fragility of real networks has then affected financial networks, causing losses and bankruptcies all over the ecosystem. Our aim is to contribute to the resiliency of the overall economic system, as follows: a) connecting supply chains and financial networks; b) with the full network in sight, studying the consequences of supply chain disruptions on the whole ecosystem, including default cascades c) building credit risk models which are directly connected to the systemic problems in production and supply chains d) designing early warning systems, e) studying reconstruction, resilience and protection mechanisms, whose joint action can mitigate the effects of future disasters. Reconstruction and resilience mechanisms include network optimization, diversification and repatriation of outsourced activities; protection mechanisms include mutualization and insurance contracts. In the latter category we include provisions that mutualize the loss, and possibly entail a local or supranational state intervention. We will calibrate the models and examine whether hedge against future systemic disasters can be implemented through public-private partnerships (PPP). To reach the above aims, we put together a team with multidisciplinary background, such as Statistics, Network Science, Game Theory, Operations Research, Finance, and Actuarial Science. The first step in the agenda is to nest supply chain and financial networks, considering not only the industrial, but also the financing relationships of firms belonging to the former, and adding their financial counterparts, as well as consumers, to study the cascade effects of supply disasters. The second consists in evaluating the ex-ante default probabilities of the ecosystem and to study its credit fragility. The third involves highlighting early warning signals, as well as possible remedies to fragility, using optimization and game theory on networks. The fourth step consists in designing diversification and pooling measures for risks that aim to increase the resiliency of such integrated networks, using and pricing financial contracts. We apply our methods to case studies, i.e., actual value chains, to analyze their current input-output connections as well as financial ties and their fragility, and to show how their resilience can be increased using risk pooling and suitably designed protection mechanisms.
- Fabio Fagnani. (Responsabile Scientifico)
- LUISS GUIDO CARLI
- POLITECNICO DI TORINO
- UNIVERSITA' DEGLI STUDI DI TORINO - Coordinator
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