Asset Bubbles and Bailouts

Tomohiro Hirano, Masaru Inaba and Noriyuki Yanagawa

No 15-004E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: As long as bubble size is relatively small, bubbles increase production level, but once the size becomes too large, then bubbles reduce it. Given this non-monotonic relationship, this paper investigates the relationship between bubbles and government bailouts. It shows that bailouts for bursting bubbles may positively influence ex-ante production efficiency and relax the existence condition of stochastic bubbles. The level of bailouts has a non-monotonic relationship with production efficiency and a partial bailout policy achieves production efficiency. Moreover, it examines the welfare effects of bailout policies rigorously and shows that even non-risky bubbles may be undesirable for taxpayers.

Pages: 41
Date: 2015-10
New Economics Papers: this item is included in nep-fmk
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Related works:
Journal Article: Asset bubbles and bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2015)
Working Paper: Asset Bubbles and Bailouts (2014)
Working Paper: Asset Bubbles and Bailouts (2012)
Working Paper: Asset Bubbles and Bailout (2012)
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