Informational Rents, Macroeconomic Rents, and Efficient Bailouts

Thomas Philippon () and Philipp Schnabl

No 16727, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze government interventions to alleviate debt overhang among banks. Interventions generate two types of rents. Informational rents arise from opportunistic participation based on private information while macroeconomic rents arise from free riding. Minimizing informational rents is a security design problem and we show that warrants and preferred stocks are the optimal instruments. Minimizing macroeconomic rents requires the government to condition implementation on sufficient participation. Informational rents always impose a cost, but if macroeconomic rents are large, efficient recapitalizations can be profitable.

JEL-codes: E3 G01 G2 G3 (search for similar items in EconPapers)
Date: 2011-01
Note: CF EFG ME PE
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Citations: View citations in EconPapers (4)

Published as “Effi cient Recapitalization,” with Philipp Schnabl, Journal of Finance, February 2013, lead articl e

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Working Paper: Informational Rents, Macroeconomic Rents, and Efficient Bailouts (2011)
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