Efficient Ex-Ante Stabilization of Firms
|Speaker:||David Frankel, Iowa State University|
|Date:||Friday 25 November 2016|
|Location:||Matrix Lecture Theatre, Building One|
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.