How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems
Abstract Economic interdependencies have become increasingly present in globalized production, financial and trade systems. While establishing interdependencies among economic agents is crucial for the production of complex products, they may also increase systemic risk due to failure...
| প্রধান লেখক: | , |
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| অন্যান্য লেখক: | |
| বিন্যাস: | প্রবন্ধ |
| ভাষা: | English |
| প্রকাশিত: |
Springer US
2021
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| অনলাইন ব্যবহার করুন: | https://hdl.handle.net/1721.1/136825 |
| _version_ | 1826201203729498112 |
|---|---|
| author | Vié, Aymeric Morales, Alfredo J. |
| author2 | Massachusetts Institute of Technology. Media Laboratory |
| author_facet | Massachusetts Institute of Technology. Media Laboratory Vié, Aymeric Morales, Alfredo J. |
| author_sort | Vié, Aymeric |
| collection | MIT |
| description | Abstract
Economic interdependencies have become increasingly present in globalized production, financial and trade systems. While establishing interdependencies among economic agents is crucial for the production of complex products, they may also increase systemic risk due to failure propagation. It is crucial to identify how network connectivity impacts both the emergent production and risk of collapse of economic systems. In this paper we propose a model to study the effects of network structure on the behavior of economic systems by varying the density and centralization of connections among agents. The complexity of production increases with connectivity given the combinatorial explosion of parts and products. Emergent systemic risks arise when interconnections increase vulnerabilities. Our results suggest a universal description of economic collapse given in the emergence of tipping points and phase transitions in the relationship between network structure and risk of individual failure. This relationship seems to follow a sigmoidal form in the case of increasingly denser or centralized networks. The model sheds new light on the relevance of policies for the growth of economic complexity, and highlights the trade-off between increasing the potential production of the system and its robustness to collapse. We discuss the policy implications of intervening in the organization of interconnections and system features, and stress how different network structures and node characteristics suggest different directions in order to promote complex and robust economic systems. |
| first_indexed | 2024-09-23T11:47:50Z |
| format | Article |
| id | mit-1721.1/136825 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T11:47:50Z |
| publishDate | 2021 |
| publisher | Springer US |
| record_format | dspace |
| spelling | mit-1721.1/1368252023-03-01T14:47:11Z How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems Vié, Aymeric Morales, Alfredo J. Massachusetts Institute of Technology. Media Laboratory Abstract Economic interdependencies have become increasingly present in globalized production, financial and trade systems. While establishing interdependencies among economic agents is crucial for the production of complex products, they may also increase systemic risk due to failure propagation. It is crucial to identify how network connectivity impacts both the emergent production and risk of collapse of economic systems. In this paper we propose a model to study the effects of network structure on the behavior of economic systems by varying the density and centralization of connections among agents. The complexity of production increases with connectivity given the combinatorial explosion of parts and products. Emergent systemic risks arise when interconnections increase vulnerabilities. Our results suggest a universal description of economic collapse given in the emergence of tipping points and phase transitions in the relationship between network structure and risk of individual failure. This relationship seems to follow a sigmoidal form in the case of increasingly denser or centralized networks. The model sheds new light on the relevance of policies for the growth of economic complexity, and highlights the trade-off between increasing the potential production of the system and its robustness to collapse. We discuss the policy implications of intervening in the organization of interconnections and system features, and stress how different network structures and node characteristics suggest different directions in order to promote complex and robust economic systems. 2021-11-01T14:33:37Z 2021-11-01T14:33:37Z 2020-07-24 2021-06-10T03:28:56Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/136825 en https://doi.org/10.1007/s10614-020-10021-5 Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. Springer Science+Business Media, LLC, part of Springer Nature application/pdf Springer US Springer US |
| spellingShingle | Vié, Aymeric Morales, Alfredo J. How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title | How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title_full | How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title_fullStr | How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title_full_unstemmed | How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title_short | How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems |
| title_sort | how connected is too connected impact of network topology on systemic risk and collapse of complex economic systems |
| url | https://hdl.handle.net/1721.1/136825 |
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