(Translated by https://www.hiragana.jp/)
Asset Bubbles and Bailouts
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Asset Bubbles and Bailouts

Author

Listed:
  • Tomohiro Hirano
  • Masaru Inaba
  • Noriyuki Yanagawa

Abstract

As long as bubble size is relatively small, bubbles increase production level, but once the size becomes too large, then bubbles reduce it. Given this non-monotonic relationship, this paper investigates the relationship between bubbles and government bailouts. It shows that bailouts for bursting bubbles may positively influence ex-ante production efficiency and relax the existence condition of stochastic bubbles. The level of bailouts has a non-monotonic relationship with production efficiency and a partial bailout policy achieves production efficiency. Moreover, it examines the welfare effects of bailout policies rigorously and shows that even non-risky bubbles may be undesirable for taxpayers.

Suggested Citation

  • Tomohiro Hirano & Masaru Inaba & Noriyuki Yanagawa, 2015. "Asset Bubbles and Bailouts," CIGS Working Paper Series 15-004E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:15-004e
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