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.
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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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