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Legislative restraints in corporate bailout design

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  • Gradstein, Mark
  • Kaganovich, Michael

Abstract

The aftermath of the recent economic crisis saw the largest U.S. government bailout of corporate entities ever. While the bailout was carried out with the explicit goal of restoring stability, it aroused much controversy and public criticism based on moral hazard concerns as well as the exorbitant cost to the taxpayer. This paper examines the bailout design on behalf of an imperfectly informed legislature aimed at shaping the incentives of a policymaker to whom bailout decisions are delegated. We show that important elements of the more moral hazard-proof design entail various legislative procedural hurdles, which effectively make the bailouts dependent on supermajority support.

Suggested Citation

  • Gradstein, Mark & Kaganovich, Michael, 2019. "Legislative restraints in corporate bailout design," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 337-350.
  • Handle: RePEc:eee:jeborg:v:158:y:2019:i:c:p:337-350
    DOI: 10.1016/j.jebo.2018.12.003
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    More about this item

    Keywords

    Political economy; Corporate bailouts;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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