Document Type
Working Paper
Publication Date
2013
Abstract
Although common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms, in practice bailouts are difficult to avoid for systemically significant enterprises. Recent experience suggests that bailouts also induce litigation from shareholders and managers complaining about expropriation and wrongful termination by the government. Our model shows how governments can design tax-financed corporate bailouts to reduce these distortions and points to the causes of inefficiencies in real-world implementations such as the Troubled Asset Relief Program. Bailouts with minimal distortion depend critically on the government’s ability to expropriate shareholders and terminate managers.
Disciplines
Banking and Finance Law | Business Organizations Law | Law | Law and Economics
Recommended Citation
Antonio E. Bernardo, Eric L. Talley & Ivo Welch,
Designing Corporate Bailouts,
Journal of Law & Economics, Vol. 59, p. 75, 2016
(2013).
Available at:
https://scholarship.law.columbia.edu/faculty_scholarship/1839
Included in
Banking and Finance Law Commons, Business Organizations Law Commons, Law and Economics Commons