The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises

Edward Glaeser

No 18112, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There are many possible ways of reforming the Government-Sponsored Enterprises that insure mortgages against default, including a purely public option, complete privatization or a hybrid model with private firms and public catastrophic insurance. If the government is sufficiently capable and benign, either public intervention can yield desirable outcomes; the key risks of any reform come from the political process. This paper examines the political risks, related to corruption and populism, of differing approaches to the problems of monopoly, externalities and market breakdowns in asset insurance. If there is a high probability that political leadership will be induced to pursue policies that maximize the profitability of private entities at the expense of taxpayers, then purely public options create lower social losses. If there is a high probability that leaders will pursue a populist agenda of lowering prices or borrowing costs, then catastrophic risk insurance can lead to lower social losses than either complete laissez-faire of a pure public option.

JEL-codes: D0 G0 H0 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-cwa and nep-pol
Note: PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as E. L. Glaeser, 2012. "The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises," Journal of Legal Analysis, vol 4(1), pages 41-82.

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