A Simple Contagion Model of Collective Risk-Averse Behavior on Inter-Enterprise Network

Contagion on inter-enterprise market is the focus of recent research on risk management issues, but risk-averse behaviors of firm in it are often overlooked. In this paper we build an inter-enterprise network model based on a parameter-tune network structure, explore the relationship between risk-averse behavior of individual firm and contagion dynamics, specifically, liquidity hoarding and fire sales. We find the collective risk-averse behaviors would have an impressive amplification effect on contagion, and heterogeneous network is more robust if risk-averse behavior exists. Furthermore, we show heterogeneity of firm asset has no significant effect on contagion.