Objectives
- Assess the two-way relationship between firms' innovation and production decisions and their financial structure;
- analyse the complementarity/substitutability between different types of financing sources, in relation with the firms' profile in terms of size, age, productivity, profitability;
- explore the occurrence and development of bankruptcy avalanches and the profile of the firms involved;
- study how appropriate public policies can support firm's innovation activity.
Description of work
The economy can be conceived as a complex adaptive system which can therefore be studied by means of Agent-based Modelling (ABM) techniques. An agent based model with a plurality of markets (goods, labour, credit and financial markets), heterogeneous agents and decentralized decision making will be the benchmark set-up for the analysis carried out in the present WP:
- The first task consists in assessing the extent to which the decision to innovate and expand/contract the scale of production by investing or hiring/firing of employees are affected by the availability of finance in one form or another and the degree of financial fragility (indebtedness);
- the second task addresses from a theoretical and computational perspective the relationships between different types of financing sources and the firms' profile in terms of size, age, productivity, profitability, growth and employment dynamics;
- the third task consists in assessing the extent to which a small shock may trigger a wave of bankruptcies; it will evaluate the effects on financial fragility of firms and banks network, as well as on income and wealth distribution, of a bubble price crash and the macroeconomic consequences in terms of output and employment volatility;
- finally, Work Package 7 is expected to investigate also how the institutional set-up affects the role of the financing mix in the entry-exit process and how public policies may reduce the risk of bankruptcies and mitigate their macroeconomic impact.
Work Package leader: Mauro Gallegati, Polytechnic University of Marche
