Increase the visibility of your scientific production by authorizing the export of your publications to HAL!

Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning

Tirole, Jean (2012) Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning. American Economic Review (AER), 102. pp. 29-59.

This is the latest version of this item.

Download (328kB) | Preview
Official URL :
Identification Number : 10.1257/aer.102.1.29


The paper provides a first analysis of market jumpstarting and its two-way interaction between mechanism design and participation constraints. The government optimally overpays for the legacy assets and cleans up the market of its weakest assets, through a mixture of buybacks and equity injections, and leaves the firms with the strongest legacy assets to the market. The government reduces adverse selection enough to let the market rebound, but not too much, so as to limit the cost of intervention. The existence of a market imposes no welfare cost.

Item Type: Article
Language: English
Date: February 2012
Refereed: Yes
Uncontrolled Keywords: market freeze, market rebound, asset repurchases, recapitalization, mechanism design, mechanism-dependent participation constraint
JEL Classification: H81 - Governmental Loans, Loan Guarantees, and Credits
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:18
Last Modified: 02 Apr 2021 15:47
OAI Identifier:

Available Versions of this Item

Actions (login required)

View Item View Item


Downloads per month over past year