|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/29884
|
| Title: | Optimal Interventions in Markets with Adverse Selection |
| Authors: | Philippon, Thomas
Skreta, Vasiliki |
| Issue Date: | 30-Nov-2010 |
| Series/Report no.: | FIN-10-011 |
| Abstract: | We characterize cost-minimizing interventions to restore lending and
investment when markets fail due to adverse selection. We solve a
mechanism design problem where the strategic decision to participate in
a government's program signals information that affects the financing
terms of non-participating borrowers. In this environment, we find that
the government cannot selectively attract good borrowers, that the
efficiency of an intervention is fully determined by the market rate for
non-participating borrowers, and that simple programs of debt guarantee
are optimal, while equity injections or asset purchases are not.
Finally, the government does not benefit from shutting down private markets. |
| URI: | http://hdl.handle.net/2451/29884 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
