The Politician and his Banker – How to Efficiently Grant State Aid
AbstractIn the current recession, politicians grant state aid of yet unknown dimensions. But whatis the most efficient measure for granting such aid? We use a theoretical model withfirms that differ in their creditworthiness and compare different types of direct subsidieswith indirectly subsidized loans. We find that, in a large parameter range, politiciansprefer subsidized loans to direct subsidies, because these avoid windfall gains to entrepreneurs,and they economize on screening costs. For similar reasons, subsidized loansmay increase social welfare relative to subsidies. From a welfare perspective, politiciansuse subsidized loans inefficiently often.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 71.
Date of creation: 2009
Date of revision:
State aid; subsidized loans; public bank; governance;
Other versions of this item:
- Hainz, Christa & Hakenes, Hendrik, 2012. "The politician and his banker — How to efficiently grant state aid," Journal of Public Economics, Elsevier, vol. 96(1), pages 218-225.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giebe, Thomas & Grebe, Tim & Wolfstetter, Elmar G., 2005.
"How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
108, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Giebe, Thomas & Grebe, Tim & Wolfstetter, Elmar, 2006. "How to allocate R&D (and other) subsidies: An experimentally tested policy recommendation," Research Policy, Elsevier, vol. 35(9), pages 1261-1272, November.
- Ram T. S. Ramakrishnan & Anjan V. Thakor, 2004.
"The Valuation of Assets under Moral Hazard,"
- Shaffer, Sherrill, 1998.
"The Winner's Curse in Banking,"
Journal of Financial Intermediation,
Elsevier, vol. 7(4), pages 359-392, October.
- Shawn Cole, 2009.
"Fixing Market Failures or Fixing Elections? Agricultural Credit in India,"
American Economic Journal: Applied Economics,
American Economic Association, vol. 1(1), pages 219-50, January.
- Shawn A. Cole, 2008. "Fixing Market Failures or Fixing Elections? Agricultural Credit in India," Harvard Business School Working Papers 09-001, Harvard Business School.
- Dewatripont, Mathias & Seabright, Paul, 2006.
"Wasteful Public Spending and State Aid Control,"
Open Access publications from University of Toulouse 1 Capitole
http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Millon, Marcia H & Thakor, Anjan V, 1985.
" Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies,"
Journal of Finance,
American Finance Association, vol. 40(5), pages 1403-22, December.
- Marcia H. Millon & Anjan V. Thakor, 2004. "Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies," Finance 0411024, EconWPA.
- Franklin Allen & Douglas Gale, 2004.
"Financial Intermediaries and Markets,"
Econometric Society, vol. 72(4), pages 1023-1061, 07.
- Andrianova, Svetlana & Demetriades, Panicos & Shortland, Anja, 2008.
"Government ownership of banks, institutions, and financial development,"
Journal of Development Economics,
Elsevier, vol. 85(1-2), pages 218-252, February.
- Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2002. "Government Ownership of Banks, Institutions, and Financial Development," Discussion Papers in Economics 02/13, Department of Economics, University of Leicester, revised Aug 2006.
- Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2006. "Government Ownership of Banks, Institutions, and Financial Development," WEF Working Papers 0011, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Hendrik Hakenes & Isabel Schnabel, 2006.
"The Threat of Capital Drain: A Rationale for Public Banks?,"
Working Paper Series of the Max Planck Institute for Research on Collective Goods
2006_11, Max Planck Institute for Research on Collective Goods.
- Hakenes, Hendrik & Schnabel, Isabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 107, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1371-1411, November.
- Scott, David H., 2007. "Strengthening the governance and performance of state-owned financial institutions," Policy Research Working Paper Series 4321, The World Bank.
- Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010.
"The real effects of financial constraints: Evidence from a financial crisis,"
Journal of Financial Economics,
Elsevier, vol. 97(3), pages 470-487, September.
- Murillo Campello & John Graham & Campbell R. Harvey, 2009. "The Real Effects of Financial Constraints: Evidence from a Financial Crisis," NBER Working Papers 15552, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000.
"Government Ownership of Banks,"
Harvard Institute of Economic Research Working Papers
1890, Harvard - Institute of Economic Research.
- Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
- Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
- Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
- Mathias Dewatripont & Eric Maskin, 2004.
"Credit and efficiency in centralized and decentralized economies,"
ULB Institutional Repository
2013/9605, ULB -- Universite Libre de Bruxelles.
- Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
- Mathias Dewatripont & Eric Maskin, 1995. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9603, ULB -- Universite Libre de Bruxelles.
- Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
- Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May.
- Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March.
- Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
- Rudolph, Heinz P., 2009. "State financial institutions : mandates, governance, and beyond," Policy Research Working Paper Series 5141, The World Bank.
- Ilyana Kuziemko & Eric Werker, 2006. "How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 905-930, October.
- Boyd, John H. & Smith, Bruce D., 1997. "Capital Market Imperfections, International Credit Markets, and Nonconvergence," Journal of Economic Theory, Elsevier, vol. 73(2), pages 335-364, April.
- de Aghion, Beatriz Armendariz, 1999. "Development banking," Journal of Development Economics, Elsevier, vol. 58(1), pages 83-100, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.