Abstract

http://ssrn.com/abstract=2066408
 


 



The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises


Edward L. Glaeser


Harvard University - John F. Kennedy School of Government, Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

May 2012

NBER Working Paper No. w18112

Abstract:     
There are many possible ways of reforming the Government-Sponsored Enterprises that insure mortgages against default, including a purely public option, complete privatization or a hybrid model with private firms and public catastrophic insurance. If the government is sufficiently capable and benign, either public intervention can yield desirable outcomes; the key risks of any reform come from the political process. This paper examines the political risks, related to corruption and populism, of differing approaches to the problems of monopoly, externalities and market breakdowns in asset insurance. If there is a high probability that political leadership will be induced to pursue policies that maximize the profitability of private entities at the expense of taxpayers, then purely public options create lower social losses. If there is a high probability that leaders will pursue a populist agenda of lowering prices or borrowing costs, then catastrophic risk insurance can lead to lower social losses than either complete laissez-faire of a pure public option.

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Number of Pages in PDF File: 57

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Date posted: May 25, 2012  

Suggested Citation

Glaeser, Edward L., The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises (May 2012). NBER Working Paper No. w18112. Available at SSRN: http://ssrn.com/abstract=2066408

Contact Information

Edward L. Glaeser (Contact Author)
Harvard University - John F. Kennedy School of Government, Department of Economics ( email )
Littauer Center
Room 315A
Cambridge, MA 02138
United States
617-496-2150 (Phone)
617-496-1722 (Fax)
Brookings Institution
1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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