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Optimal Fragile Financial Networks

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  • Fabio Castiglionesi

    (CentER and Tilburg University.)

Abstract

the structure of the decentralized financial network is equal to the efficient one, yielding an expected payoff arbitrarily close to the efficient one. However, the investment decision is not the same. That is, in the decentralized network some banks will gamble as compared to the socially preferred outcome.

Suggested Citation

  • Fabio Castiglionesi, 2008. "Optimal Fragile Financial Networks," 2008 Meeting Papers 658, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:658
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    References listed on IDEAS

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    1. Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," European Economic Review, Elsevier, vol. 44(4-6), pages 713-718, May.
    2. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
    3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-762, November.
    4. Ana Babus, 2016. "The formation of financial networks," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 239-272, May.
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    Cited by:

    1. Vasilis Hatzopoulos & Giulia Iori & Rosario N. Mantegna & Salvatore Miccich� & Michele Tumminello, 2015. "Quantifying preferential trading in the e-MID interbank market," Quantitative Finance, Taylor & Francis Journals, vol. 15(4), pages 693-710, April.
    2. Chiara Perillo & Stefano Battiston, 2020. "Financialization and unconventional monetary policy: a financial-network analysis," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1385-1428, November.
    3. Girardi, Giulio & Hanley, Kathleen W. & Nikolova, Stanislava & Pelizzon, Loriana & Sherman, Mila Getmansky, 2021. "Portfolio similarity and asset liquidation in the insurance industry," Journal of Financial Economics, Elsevier, vol. 142(1), pages 69-96.
    4. Hitoshi Hayakawa, 2020. "Liquidity in Financial Networks," Computational Economics, Springer;Society for Computational Economics, vol. 55(1), pages 253-301, January.
    5. Stiglitz Joseph E., 2010. "Contagion, Liberalization, and the Optimal Structure of Globalization," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-47, December.
    6. Andre R. Neveu, 2018. "A survey of network-based analysis and systemic risk measurement," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(2), pages 241-281, July.
    7. Wang, Lanfang & Wang, Susheng, 2012. "Endogenous networks in investment syndication," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 640-663.
    8. Hitoshi Hayakawa, 2014. "Complexity of Payment Network," CARF F-Series CARF-F-345, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    9. Paul Glasserman & Peyton Young, 2015. "Contagion in Financial Networks," Economics Series Working Papers 764, University of Oxford, Department of Economics.
    10. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 978-995, December.
    11. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    12. Paul Glasserman & H. Peyton Young, 2015. "Contagion in Financial Markets," Working Papers 15-21, Office of Financial Research, US Department of the Treasury.
    13. Calvin Weng & Tugrul Daim, 2012. "Structural Differentiation and Its Implications—Core/Periphery Structure of the Technological Network," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 3(4), pages 327-342, December.

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