Runs versus Lemons: Information Disclosure and Fiscal Capacity / Miguel Faria-e-Castro, Joseba Martinez, Thomas Philippon.

Format:

Book

Author/Creator:

Faria-e-Castro, Miguel.

Contributor:

National Bureau of Economic Research.

Martinez, Joseba.

Philippon, Thomas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21201.

NBER working paper series no. w21201

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Runs versus Lemons

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the risk of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.

Notes:

Print version record

May 2015.