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Governments in the EU frequently bail out firms in distress by granting state aid. I use data from 86 cases during the years 1995-2003 to examine two issues: the impact of bailouts on bankruptcy probability and the determinants of bailout policy. I have three main results. First, the estimated discrete-time hazard rate increases during the first four years after the subsidy and drops after that, suggesting that some bailouts only delayed exit instead of preventing it. The number of failing bailouts could be reduced if European control was tougher. Second, governments' bailout decisions favored public firms, even though public firms did not outperform private ones in the survival chances. Third, subsidy choice is an endogenous variable in the analysis of the hazard rate. Treating it as exogenous underestimates its impact on the bankruptcy probability. ; Europäische Unternehmen, die in Schwierigkeiten geraten sind, werden regelmäßig von den Regierungen in der EU durch Rettungs- und Restrukturierungsbeihilfen (R&R-Beihilfen) unterstützt. Im vorliegenden Paper werden 86 von der Europäischen Kommission überprüfte Fälle von R&RBeihilfen zwischen 1995 und 2003 herangezogen, um zwei Probleme zu untersuchen: die Auswirkung von R&R-Beihilfen auf die Bankrotthäufigkeit und die bestimmenden Faktoren für Subventionspolitik der Regierungen. Dabei kommt die Studie zu drei Ergebnissen. Es zeigt sich, dass sich die geschätzte Bankrottwahrscheinlichkeit während der ersten vier Jahre nach der Beihilfe erhöht und danach sinkt. Dies deutet darauf hin, dass einige Beihilfen den Marktaustritt nur verzögern, anstatt ihn zu verhindern. Die Zahl der Firmen, die erfolglos Beihilfe bekommen, könnte durch eine strengere europäische Beihilfekontrolle verringert werden. Das zweite Ergebnis besagt, dass die Regierungen bei der Beihilfevergabe staatliche Unternehmen bevorzugt haben, obwohl staatliche Unternehmen gegenüber den privaten keine bessere Überlebenswahrscheinlichkeit haben. Drittens ist die Beihilfewahl eine endogene Variable in der Analyse der Bankrottwahrscheinlichkeit. Sie als exogen zu behandeln bedeutet, ihre Auswirkung auf die Bankrottwahrscheinlichkeit zu unterschätzen.

This paper studies bank solvency crises due to macroeconomic shocks in a model where government is prone to bailout because of cronyism. Citizens can dismiss the government and overrule its decision if they believe that a bailout is not economically justified. The results are as follows. First, the probability of a political crisis in equilibrium increases with the scope of the political principal-agent problem. Second, political uncertainty enlarges the set of parameters for which a banking crisis takes place and thereby increases financial instability. Third, politico-financial crises may stem from foreign lenders' loss of confidence. [Copyright 2007 Elsevier B.V.]

This paper explores the interaction between foreign-debt bailout guarantees, financial supervision and optimal factor taxation. The context is that of a pre-"twin crises" emerging market economy and the analysis is undertaken using an original stylised two-period model based on the insights of the "third-generation" currency crisis literature. Bailout guarantees lead to moral hazard problems as banks monitor less and lend more than is socially desirable. As such, the solution of the government's Ramsey taxation problem under bailouts entails a corrective rationale for capital taxation, implying a higher tax-rate than would otherwise be the case. When complementary regulatory instruments, such as effort-adjusted capital-requirements, are available to government, this capital tax-rate decreases with an increase in supervisory effectiveness. The paper's conclusion is that bailout guarantees should only co-exist with some form of effective banking supervision to ensure that the effects of moral hazard are mitigated, which reinforces the view that emerging economies can signal their financial reputation and also contribute to reducing the risk of future crises only by implementing good governance and effective supervisory procedures in their financial systems. ; N/A

This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

Today's financial crisis is the result of dismal failures on the part of regulators, market analysts, and corporate executives. Yet the response of the American government has been to bail out the very institutions and individuals that have wrought such havoc upon the nation. Are such massive bailouts really called for? Can they succeed?Robert E. Wright and his colleagues provide an unbiased history of government bailouts and a frank assessment of their effectiveness. Their book recounts colonial America's struggle to rectify the first dangerous real estate bubble and the British government's

The financial sector bailouts seen during the Great Recession generated substantial opposition and controversy. We assess the welfare benefits of government-funded emergency support to the financial sector, taking into account its effects on risk-taking incentives. In our quantitative general equilibrium model, the financial crisis probability depends on financial intermediaries' balance sheet choices, influenced by capital adequacy constraints and ex ante known emergency support provisions. These policy tools interact to make financial sector bailouts welfare improving when capital adequacy constraints are consistent with the current Basel III regulation, but potentially welfare decreasing with looser capital adequacy regulation existing before the Great Recession.

We analyze incentive-efficient government bailouts within a canonical model of intra-firm moral hazard. Bailouts exacerbate the moral hazard of firms and managers in two ways. First, they make them less averse to failing. Second, the taxes to fund bailouts dampen their incentives. Nevertheless, if third-party externalities from keeping the firm alive are strong, bailouts can improve welfare. Our model suggests that governments should use bailouts sparingly, where social externalities are large and subsidies small; eliminate incumbent owners and managers to improve a priori incentives; and finance bailouts through redistributive taxes on productive firms instead of forcing recipients to repay in the future.