Government Bailout Funds: Balancing Rules and Discretion

Mark Gradstein

Journal of Money, Credit and Banking, 2022, vol. 54, issue 1, 333-342

Abstract: This paper studies government bailout design in the face of economic failures by multiple firms, with ensuing threats to economic stability. Assuming that a commitment to a bailout magnitude is possible, yet cannot be made contingent on unforeseen circumstances, it is argued that the optimal policy consists of stipulating a bailout fund whose upper limit cannot be exceeded. Such an equilibrium policy provides a balance between flexibility to adjust to future circumstances and restraint of moral hazard incentive faced by the firms. An extension to the baseline model considers the case where corporate interests, divergent from those of the public, play a role, and the cap on bailout spending matters for the bargaining outcome between those interests.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jmcb.12788

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:1:p:333-342

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().