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Optimal Interventions in Markets with Adverse Selection

Philippon, Thomas; Skreta, Vasiliki; (2012) Optimal Interventions in Markets with Adverse Selection. American Economic Review , 102 (1) pp. 1-28. 10.1257/aer.102.1.1. Green open access

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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)

Type: Article
Title: Optimal Interventions in Markets with Adverse Selection
Open access status: An open access version is available from UCL Discovery
DOI: 10.1257/aer.102.1.1
Publisher version: http://doi.org/10.1257/aer.102.1.1
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10181620
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