Publication:
Risk Absorption by the State : When Is It Good Public Policy?

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dc.contributor.authorAnginer, Deniz
dc.contributor.authorde la Torre, Augusto
dc.contributor.authorIze, Alain
dc.date.accessioned2012-03-19T18:06:23Z
dc.date.available2012-03-19T18:06:23Z
dc.date.issued2011-12-01
dc.description.abstractThe global financial crisis brought public guarantees to the forefront of the policy debate. Based on a review of the theoretical foundations of public guarantees, this paper concludes that the commonly used justifications for public guarantees based solely on agency frictions (such as adverse selection or lack of collateral) and/or un-internalized externalities are flawed. When risk is idiosyncratic, it is highly unlikely that a case for guarantees can be made without risk aversion. When risk aversion is explicitly added to the picture, public guarantees may be justified by the state's natural advantage in dealing with collective action failures (providing public goods). The state can spread risk more finely across space and time because it can coordinate and pool atomistic agents that would otherwise not organize themselves to solve monitoring or commitment problems. Public guarantees may be transitory, until financial systems mature, or permanent, when risk is fat-tailed. In the case of aggregate (non-diversifiable) risk, permanent public guarantees may also be justified, but in this case the state adds value not by spreading risk but by coordinating agents. In addition to greater transparency in justifying public guarantees, the analysis calls for exploiting the natural complementarities between the state and the markets in bearing risk.en
dc.identifierhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111202104813
dc.identifier.doi10.1596/1813-9450-5893
dc.identifier.urihttps://hdl.handle.net/10986/3660
dc.languageEnglish
dc.relation.ispartofseriesPolicy Research working paper ; no. WPS 5893
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectABOVE MARKET RATES
dc.subjectACCESS TO FINANCE
dc.subjectAGENCY PROBLEMS
dc.subjectAGENTS
dc.subjectALLOCATION OF CREDIT
dc.subjectANNUITIES
dc.subjectARBITRAGE
dc.subjectASSET MANAGERS
dc.subjectASYMMETRIC INFORMATION
dc.subjectAUCTION
dc.subjectBAILOUT
dc.subjectBALANCE SHEETS
dc.subjectBANK POLICY
dc.subjectBANK RUN
dc.subjectBIASES
dc.subjectBID
dc.subjectBOND
dc.subjectBOND ISSUERS
dc.subjectBONDS
dc.subjectBORROWING
dc.subjectBORROWING CAPACITY
dc.subjectBUSINESS DEVELOPMENT
dc.subjectBUSINESS DEVELOPMENT BANK
dc.subjectCAPITAL ACCUMULATION
dc.subjectCAPITAL INJECTIONS
dc.subjectCC
dc.subjectCENTRAL BANKS
dc.subjectCHECKS
dc.subjectCOLLATERAL REQUIREMENTS
dc.subjectCOLLECTIVE ACTION
dc.subjectCOLLECTIVE ACTION PROBLEM
dc.subjectCOLLECTIVE ACTION PROBLEMS
dc.subjectCOLLEGE EDUCATION
dc.subjectCOMMERCIAL BANK
dc.subjectCOMMERCIAL BANKS
dc.subjectCONFLICTS OF INTEREST
dc.subjectCONSUMER CREDIT
dc.subjectCONTAINING SYSTEMIC RISK
dc.subjectCONTRACT ENFORCEMENT
dc.subjectCOORDINATION FAILURES
dc.subjectCORPORATE FINANCE
dc.subjectCOST OF CAPITAL
dc.subjectCOST OF LOAN
dc.subjectCOST SHARING
dc.subjectCOVERAGE
dc.subjectCREDIT DEFAULT
dc.subjectCREDIT EXPANSION
dc.subjectCREDIT GUARANTEE
dc.subjectCREDIT GUARANTEES
dc.subjectCREDIT MARKET
dc.subjectCREDIT MARKETS
dc.subjectCREDIT POLICY
dc.subjectCREDIT PROGRAMS
dc.subjectCREDIT RATIONING
dc.subjectCREDITORS
dc.subjectDEBT
dc.subjectDEFAULT LOSSES
dc.subjectDEGREE OF RISK
dc.subjectDEPOSIT
dc.subjectDEPOSIT GUARANTEES
dc.subjectDEPOSIT INSURANCE
dc.subjectDEVELOPMENT BANK
dc.subjectDEVELOPMENT BANKS
dc.subjectDIFFERENTIAL TAXATION
dc.subjectDIRECTED CREDIT
dc.subjectDISCLOSURE REQUIREMENTS
dc.subjectEARNINGS
dc.subjectECONOMIES OF SCALE
dc.subjectEMPLOYEE
dc.subjectENABLING ENVIRONMENT
dc.subjectENTREPRENEUR
dc.subjectENTREPRENEURS
dc.subjectEXTERNALITIES
dc.subjectFAIR PRICE
dc.subjectFEDERAL RESERVE
dc.subjectFEDERAL RESERVE BANK
dc.subjectFINANCIAL CRISES
dc.subjectFINANCIAL CRISIS
dc.subjectFINANCIAL DEVELOPMENT
dc.subjectFINANCIAL FRAGILITY
dc.subjectFINANCIAL INTERMEDIARIES
dc.subjectFINANCIAL INTERMEDIATION
dc.subjectFINANCIAL MARKETS
dc.subjectFINANCIAL RISK
dc.subjectFINANCIAL SERVICES
dc.subjectFINANCIAL SERVICES INDUSTRY
dc.subjectFINANCIAL STABILITY
dc.subjectFINANCIAL SYSTEM
dc.subjectFINANCIAL SYSTEMS
dc.subjectFISCAL CONSTRAINTS
dc.subjectFORM OF CREDIT
dc.subjectGOVERNMENT GUARANTEES
dc.subjectGOVERNMENT INTERVENTION
dc.subjectGRANT PROGRAMS
dc.subjectGUARANTEE FUNDS
dc.subjectGUARANTEE SCHEME
dc.subjectGUARANTEE SCHEMES
dc.subjectGUARANTOR
dc.subjectGUARANTORS
dc.subjectHEALTH INSURANCE
dc.subjectHEDGE FUNDS
dc.subjectHOLDINGS
dc.subjectHOUSEHOLDS
dc.subjectHOUSING
dc.subjectIMPERFECT INFORMATION
dc.subjectINCOME DISTRIBUTION
dc.subjectINEQUALITIES
dc.subjectINFORMATION ASYMMETRIES
dc.subjectINFORMATION ASYMMETRY
dc.subjectINFRASTRUCTURE FINANCE
dc.subjectINSURANCE
dc.subjectINSURANCE MARKETS
dc.subjectINSURANCE PREMIUM
dc.subjectINTEREST PAYMENTS
dc.subjectINTEREST RATE
dc.subjectINTEREST RATES
dc.subjectINTERNATIONAL BANK
dc.subjectINTERNATIONAL FINANCE
dc.subjectINVESTMENT DECISIONS
dc.subjectINVESTMENT PROJECTS
dc.subjectJOINT STOCK COMPANIES
dc.subjectJOINT STOCK COMPANY
dc.subjectLACK OF COLLATERAL
dc.subjectLENDER
dc.subjectLENDER OF LAST RESORT
dc.subjectLENDER-OF-LAST-RESORT
dc.subjectLENDERS
dc.subjectLIABILITY
dc.subjectLIQUIDATION
dc.subjectLIQUIDATION VALUE
dc.subjectLIQUIDATIONS
dc.subjectLIQUIDITY
dc.subjectLIQUIDITY RISK
dc.subjectLOAN APPLICANTS
dc.subjectLOAN DEFAULT
dc.subjectLOAN GUARANTEE
dc.subjectLOAN GUARANTEE PROGRAM
dc.subjectLOAN GUARANTEE PROGRAMS
dc.subjectLOAN LOSS PROVISIONS
dc.subjectLOAN MARKET
dc.subjectLOAN MARKETS
dc.subjectLOAN PROGRAMS
dc.subjectLOAN REPAYMENT
dc.subjectLONG-TERM FINANCE
dc.subjectLONG-TERM INSTRUMENTS
dc.subjectLONG-TERM LOANS
dc.subjectLOW INTEREST RATES
dc.subjectMACROECONOMIC POLICY
dc.subjectMANDATES
dc.subjectMARKET DEPTH
dc.subjectMARKET FAILURE
dc.subjectMARKET FAILURES
dc.subjectMARKET INEFFICIENCY
dc.subjectMARKET LIQUIDITY
dc.subjectMARKET PARTICIPANTS
dc.subjectMATURITY
dc.subjectMDB
dc.subjectMORAL HAZARD
dc.subjectMORTGAGE
dc.subjectMORTGAGE FINANCE
dc.subjectMULTILATERAL DEVELOPMENT BANKS
dc.subjectMUTUAL FUNDS
dc.subjectPARTIAL CREDIT
dc.subjectPARTIAL GUARANTEE
dc.subjectPARTIAL GUARANTEES
dc.subjectPARTICIPATION CONSTRAINTS
dc.subjectPEER PRESSURE
dc.subjectPENSION
dc.subjectPENSION FUNDS
dc.subjectPOLICY RESPONSE
dc.subjectPOLICY RESPONSES
dc.subjectPOLITICAL ECONOMY
dc.subjectPRICE RISK
dc.subjectPRICE VOLATILITY
dc.subjectPRIVATE BANKS
dc.subjectPRIVATE INVESTMENT
dc.subjectPRIVATE LENDER
dc.subjectPRIVATE LENDERS
dc.subjectPRIVATIZATION
dc.subjectPROBABILITY OF REPAYMENT
dc.subjectPROFITABILITY
dc.subjectPUBLIC BANKS
dc.subjectPUBLIC INVESTMENT
dc.subjectPUBLIC LENDERS
dc.subjectPUBLIC POLICY
dc.subjectRATE OF RETURN
dc.subjectRATING AGENCIES
dc.subjectREAL ESTATE
dc.subjectREINSURANCE
dc.subjectREPAYMENT
dc.subjectREPAYMENTS
dc.subjectRESERVES
dc.subjectRETAIL INVESTORS
dc.subjectRETURNS
dc.subjectRISK AVERSION
dc.subjectRISK FRONTIER
dc.subjectRISK MANAGEMENT
dc.subjectRISK NEUTRAL
dc.subjectRISK PREMIUM
dc.subjectRISK TAKING
dc.subjectRISK TRANSFER
dc.subjectRULE OF LAW
dc.subjectSETTLEMENT
dc.subjectSHAREHOLDERS
dc.subjectSMALL BUSINESS
dc.subjectSMALL BUSINESS LOAN
dc.subjectSMALL FARMERS
dc.subjectSOCIAL WELFARE
dc.subjectSTATE BANK
dc.subjectSTATE BANKING
dc.subjectSTATE BANKS
dc.subjectSTATE GUARANTEE
dc.subjectSTATE GUARANTEES
dc.subjectSTATE INTERVENTION
dc.subjectSTATE LOAN
dc.subjectSTUDENT LOAN
dc.subjectSTUDENT LOANS
dc.subjectSUBSIDIZATION
dc.subjectSWAP
dc.subjectSYSTEMIC RISK
dc.subjectTAX
dc.subjectTAX SYSTEM
dc.subjectTRADING
dc.subjectTRANSFER PAYMENT
dc.subjectTRANSPARENCY
dc.subjectUNDERWRITING
dc.subjectUNEMPLOYMENT
dc.subjectWAGES
dc.subjectWHOLESALE FUNDING
dc.titleRisk Absorption by the State : When Is It Good Public Policy?en
dspace.entity.typePublication
okr.crosscuttingsolutionareaJobs
okr.crossref.titleRisk Absorption by the State: When is It Good Public Policy?
okr.date.disclosure2011-12-01
okr.date.doiregistration2025-04-10T11:06:43.056726Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111202104813
okr.globalpracticeSocial Protection and Labor
okr.guid231941468134726378
okr.identifier.doi10.1596/1813-9450-5893
okr.identifier.externaldocumentum000158349_20111202104813
okr.identifier.internaldocumentum15521582
okr.identifier.reportWPS5893
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2011/12/02/000158349_20111202104813/Rendered/PDF/WPS5893.pdfen
okr.region.administrativeThe World Region
okr.region.administrativeThe World Region
okr.topicSocial Protections and Labor::Labor Policies
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublication35317b87-0569-5cde-bb5e-db1a425e6889
relation.isAuthorOfPublicationddbea2d3-9cc2-52f4-ab28-94372063d761
relation.isAuthorOfPublication.latestForDiscovery35317b87-0569-5cde-bb5e-db1a425e6889
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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