Will large economies be stable?

We study networks of firms in which inputs for production are not easily substitutable, as in several real-world supply chains. Building on Robert May's original argument for large ecosystems, we argue that such networks generically become dysfunctional when their size increases, when the heterogeneity between firms becomes too strong, or when substitutability of their production inputs is reduced. At marginal stability and for large heterogeneities, crises can be triggered by small idiosyncratic shocks, which lead to “avalanches” of defaults. This scenario would naturally explain the well-known “small shocks, large business cycles” puzzle, as anticipated long ago by Bak, Chen, Scheinkman, and Woodford. However, an out-of-equilibrium version of the model suggests that other scenarios are possible, in particular that of `turbulent economies’.