Seminar
Efficient Ex-Ante Stabilization of Firms
Research Cluster
Speaker: | David Frankel, Iowa State University |
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Date: | Friday 25 November 2016 |
Time: | 15:30-17:00 |
Location: | Matrix Lecture Theatre, Building One |
Further details
Abstract
Distressed
rms are vulnerable to ine¢ cient panic-based runs of their workers, suppliers, and customers. A policymaker may try to prevent such a run by pledging to
protect the interests of these stakeholders should a
rm cease to do business. However, this promise also enables the
rm to demand better terms of trade from its stakeholders, which blunts the policys e¤ectiveness. We show how to avoid such an adverse response by the use of partial, countercyclical insurance. Under certain conditions, such a scheme costlessly implements the
rst-best outcome in the limit as the stakeholders information becomes precise.