Asset Bubbles and Bailouts
This paper investigates the relationship between bubbles and government bailouts. Contrary to the previous literature about bailouts, it shows that bailouts for bursting bubbles may positively influence ex-ante production efficiency and relax the existence condition of stochastic bubbles. The level of bailouts has a non-monotonic relationship with production efficiency and not full bailouts but a "partial bailout" policy achieves production efficiency. Moreover, it examines the welfare effects of bailout policies rigorously. The welfare of rescued entrepreneurs is an increasing function of bailout level, but the welfare of taxpayers (workers) shows a non-monotonic relation with bailout level. It shows that even non-risky bubbles may be undesirable for taxpayers.
|Date of creation:||Jan 2014|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.canon-igs.org/en/|
More information through EDIRC
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.:
- Harald Uhlig, 2009.
"A Model of a Systemic Bank Run,"
NBER Working Papers
15072, National Bureau of Economic Research, Inc.
- Nikolov, Kalin, 2010. "Is Private Leverage Excessive?," MPRA Paper 28407, University Library of Munich, Germany, revised Jun 2010.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2005.
"Bubbles and Capital Flow Volatility: Causes and Risk Management,"
NBER Working Papers
11618, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
- Holmstrom, B & Tirole, J, 1996.
"Private and Public Supply of Liquidity,"
96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hart, Oliver & Moore, John, 1994.
"A Theory of Debt Based on the Inalienability of Human Capital,"
The Quarterly Journal of Economics,
MIT Press, vol. 109(4), pages 841-79, November.
- Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers 3906, National Bureau of Economic Research, Inc.
- Hart, O. & Moore, J., 1991. "A Theory of Debt Based on the Inalienability of Human Capital," Working papers 592, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kosuke Aoki & Kalin Nikolov, 2011.
"Bubbles, Banks, and Financial Stability,"
IMES Discussion Paper Series
11-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
- Kosuke Aoki & Kalin Nikolov, 2011. "Bubbles, Banks, and Financial Stability," CARF F-Series CARF-F-253, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Aoki, Kosuke & Nikolov, Kalin, 2012. "Bubbles, banks and financial stability," Working Paper Series 1495, European Central Bank.
- Nobuhiro Kiyotaki, 1998. "Credit and Business Cycles," The Japanese Economic Review, Japanese Economic Association, vol. 49(1), pages 18-35, 03.
- Kiminori Matsuyama, 2007. "Credit Traps and Credit Cycles," American Economic Review, American Economic Association, vol. 97(1), pages 503-516, March.
- anonymous, 1998. "Credit unions: What's the fuss?," Financial Update, Federal Reserve Bank of Atlanta, issue Oct, pages 4.
- Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May.
When requesting a correction, please mention this item's handle: RePEc:cnn:wpaper:14-001e. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The Canon Institute for Global Studies)
If references are entirely missing, you can add them using this form.