Runs versus Lemons: Information Disclosure and Fiscal Capacity

Miguel Faria-e-Castro, Joseba Martinez and Thomas Philippon ()

No 21201, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the risk of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.

JEL-codes: E44 E5 E6 G01 G21 G28 H12 H2 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cba, nep-cfn and nep-mac
Note: AP CF EFG ME
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Citations: View citations in EconPapers (12)

Published as Miguel Faria-e-Castro & Joseba Martinez & Thomas Philippon, 2017. "Runs versus Lemons: Information Disclosure and Fiscal Capacity," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1683-1707.

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Related works:
Journal Article: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2017)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2016)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2015)
Working Paper: Runs versus Lemons: Information Disclosure and Fiscal Capacity (2015)
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