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Legislative Restraint in Corporate Bailout Design

Author

Listed:
  • Mark Gradstein
  • Michael Kaganovich
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 design entail legislative procedural hurdles such as criteria for appointing policymaking executives with future bailout powers, which favor selection of the types who are less susceptible to the costs of an economic crises.

Suggested Citation

  • Mark Gradstein & Michael Kaganovich, 2018. "Legislative Restraint in Corporate Bailout Design," CESifo Working Paper Series 7076, CESifo.
    • Handle: RePEc:ces:ceswps:_7076
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    References listed on IDEAS

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    Cited by:

    1. Mark Gradstein, 2022. "Government Bailout Funds: Balancing Rules and Discretion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 333-342, February.

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    More about this item

    Keywords

    political economy; corporate bailouts;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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