Legislative restraints in corporate bailout design

Mark Gradstein, Michael Kaganovich

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish
Pages (from-to)337-350
Number of pages14
JournalJournal of Economic Behavior and Organization
Volume158
DOIs
StatePublished - 1 Feb 2019

Keywords

  • Corporate bailouts
  • Political economy

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