Optimal Interventions in Markets with Adverse Selection

Thomas Philippon () and Vasiliki Skreta

No 15785, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We characterize cost-minimizing interventions to restore lending and investment when markets fail due to adverse selection. We solve a mechanism design problem where the strategic decision to participate in a government's program signals information that affects the financing terms of non-participating borrowers. In this environment, we find that the government cannot selectively attract good borrowers, that the efficiency of an intervention is fully determined by the market rate for non-participating borrowers, and that simple programs of debt guarantee are optimal, while equity injections or asset purchases are not. Finally, the government does not benefit from shutting down private markets.

JEL-codes: D02 D62 D82 D86 E44 E58 G01 G2 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-ban, nep-cta and nep-reg
Note: CF EFG ME PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Thomas Philippon & Vasiliki Skreta, 2012. "Optimal Interventions in Markets with Adverse Selection," American Economic Review, American Economic Association, vol. 102(1), pages 1-28, February.

Downloads: (external link)
http://www.nber.org/papers/w15785.pdf (application/pdf)

Related works:
Journal Article: Optimal Interventions in Markets with Adverse Selection (2012)
Working Paper: Optimal Interventions in Markets with Adverse Selection (2011)
Working Paper: Optimal Interventions in Markets with Adverse Selection (2010)
Working Paper: Optimal Interventions in Markets with Adverse Selection (2010)
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:nbr:nberwo:15785

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15785

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().