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Optimal Interventions in Markets with Adverse Selection.

Optimal Interventions in Markets with Adverse Selection.

Authors :
Philippon, Thomas
Skreta, Vasiliki
Source :
American Economic Review; Feb2012, Vol. 102 Issue 1, p1-28, 28p, 3 Diagrams
Publication Year :
2012

Abstract

We study the design of interventions to stabilize financial markets plagued by adverse selection. Our contribution is to analyze the information revealed by participation decisions. Taking part in a government program carries a stigma, and outside options are mechanism dependent. We show that the efficiency of an intervention can be assessed by its impact on the market interest rate. The presence of an outside market determines the nature of optimal interventions and the choice of financial instruments (debt guarantees in our model), but it does not affect implementation costs. (JEL D82, D86, G01, G20, G31) [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
00028282
Volume :
102
Issue :
1
Database :
Complementary Index
Journal :
American Economic Review
Publication Type :
Academic Journal
Accession number :
71360828
Full Text :
https://doi.org/10.1257/aer.102.1.1