The thesis analyses the moral hazard problem which arises in political or fiscal federations when member states anticipate being bailed out by the centre in case of financial distress. In particular, I examine whether an orderly default mechanism or deeper fiscal integration within the European Union can alleviate the soft budget constraint phenomenon and provide a solution to the sovereign debt crises engulfing the Eurozone and other parts of the world. The first essay adapts the standard Stackelberg approach of the bailout literature in order to study the effects of bankruptcy procedures on regional opportunistic behaviour. The insolvency mechanism is shaped by two parameters: the costs of default and the exemption level for public assets. The model lends support to the market discipline hypothesis if all public assets are exempt from seizure. If, by contrast, the exemption level for public assets is low, it is the central government rather than the credit market that discourages overborrowing since the former is incentivised to tax heavily indebted regions. The model's major policy insight is that an insolvency mechanism can lower the federation's welfare if it is not carefully designed. The second essay sheds light on the incentive effects of the sovereign debt restructuring mechanism which has been drafted by the Eurozone in response to the debt crisis. Employing a global game approach, the model analyses the impact of insolvency procedures on the size of the bailout, the level of effort exerted by the debtor country and EU welfare. Challenging some arguments in the policy literature, the model's major policy implication is that a half-hearted debt restructuring mechanism fails to mitigate the commitment and moral hazard problems embedded in the current EMU framework. The third essay questions the conventional wisdom that the Euro cannot survive without closer integration, using a simple political economy framework. The model compares the stability and welfare implications of the current "muddling through" scenario, an orderly default mechanism as well as a fiscal and a political union setting. Interestingly, the results suggest that the "muddling through" scenario is not more prone to break-up than the political or the fiscal union. The model's major policy recommendation is that implementing an orderly default mechanism and inserting an explicit exit clause into the European Treaties might prove more effective in preventing a Eurozone break-up than far-reaching institutional reforms.

This thesis is a study of the Troubled Asset Relief Plan, referred to as TARP, and its effectiveness, proper allocation of resources, and governance in response to the 2008 U.S. Recession. By examining the eight largest banking institutions that effectively provided the largest net gain of funds to the government and comparing those to the eight largest banking institutions with shares still listed on the market as of 2018 that provided the largest net loss of funds to the government, we attempt to draw conclusions upon the effectiveness and decision making of the TARP plan and how to best address future economic recessions. By comparing share price change and return that the government received over 10 years, from FY 2009 to FY 2018, of both the most profitable and least profitable banks back to the taxpayer, it is shown that the market reacts accordingly to these funds being allocated to select institutions and favors companies that can effectively return resources lent by the government and then some. The share prices for those banks that returned more than expected to the government universally outperformed both the financial sector and S&P 500 over the ten-year period following the subsidy of TARP funds. This pairing of both share price rise and successful return on investment to the taxpayer of the United States Federal Government during the turmoil following the stock market crash point towards not only the success of the TARP program but that its resources should have been allocated even stronger towards large banks.

On July 5, 2015, Greek voters were asked to vote on whether the country should accept the terms of austerity offered by the European Union for bailout from the country’s financial crisis. With a turnout rate of 62.5% overall, 61.3% of Greeks voted “no.” While a majority of voters in every district opposed the bailout’s terms, the margin against the proposed austerity measures ranged from 51.2% in Lakonias to 73.8% in Chanion. This paper explores whether political parties influenced Greek voters’ decisions to accept or reject the EU's budgetary reforms. We first review the literature relevant to that question, focusing on whether party platforms are merely “cheap talk” or instead are salient in determining electoral outcomes. We then test our hypotheses empirically at the voting district level. In this model, our key independent variable is party influence, which is measured by party vote shares in the nationwide election held in January of 2015. The dependent variable is the percentage that voted “no” to austerity in July 2015 in each of Greece’s 56 electoral districts. We also control for average age and the unemployment rate across regions, as well as the fraction of first-time voters in each electoral district. After conducting simple regression analysis, we report evidence that a pro-austerity party (New Democracy) was a significant factor impacting the results of the referendum. This research finding bolsters the claim that parties can shape electoral outcomes on questions decided by an institution of direct democracy.

<p>This thesis seeks to provide an extensive theoretical framework for the potential incentive</p><p>effects from debt relief. The objective is achieved by integrating the positive incentive</p><p>model by Krugman with a negative incentive framework developed by drawing on the</p><p>theories of a soft budget constraint. The analysis shows that the existence of bailouts</p><p>offers the possibility that debt relief can produce negative incentives for the debtor</p><p>instead of positive incentives for improved performance. Taking on a game theoretical</p><p>perspective suggests that strategic behavior in the interaction between the debtor and the</p><p>creditor can increase the likelihood of a specific incentive effect to prevail. Such an</p><p>interactive game also highlights the importance for the creditor to obtain reliable</p><p>information about the behavior of the debtor.</p>

This thesis seeks to provide an extensive theoretical framework for the potential incentive effects from debt relief. The objective is achieved by integrating the positive incentive model by Krugman with a negative incentive framework developed by drawing on the theories of a soft budget constraint. The analysis shows that the existence of bailouts offers the possibility that debt relief can produce negative incentives for the debtor instead of positive incentives for improved performance. Taking on a game theoretical perspective suggests that strategic behavior in the interaction between the debtor and the creditor can increase the likelihood of a specific incentive effect to prevail. Such an interactive game also highlights the importance for the creditor to obtain reliable information about the behavior of the debtor.

京都大学 / 新制・課程博士 / 博士(経済学) / 甲第22950号 / 経博第625号 / 新制||経||294(附属図書館) / 京都大学大学院経済学研究科経済学専攻 / (主査)教授 柴田 章久, 准教授 高橋 修平, 教授 宇南山 卓 / 学位規則第4条第1項該当 / Doctor of Economics / Kyoto University / DGAM

This dissertation focuses on the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP) and consists of a historical overview of TARP and three empirical studies of the CPP. In the first empirical analysis, presented in chapter 2, I use an event study approach to examine the impact of firm announcements of CPP approval on their stock price. I find that the average firm in my sample enjoyed a 1.31% abnormal return on their stock price in the trading days surrounding this news event. In a multivariate regression that examines cross-firm variation in abnormal returns, I find evidence that legislative action in February 2009 to increase the restrictions on executive compensation at CPP-funded firms may have played an important role in dulling market enthusiasm for a firm qualifying for CPP capital. In chapter 3, I propose a model of TARP funding with numerous financial, structure, economic and regulatory explanatory variables to determine which factors were most influential in directing CPP capital to specific firms in the banking system. I find a clear pattern that CPP capital flowed most prominently to both larger, systematically important firms and firms that, while not on the verge of failure, were experiencing greater financial stress. In chapter 4, I study whether CPP funding altered bank behavior. Modifying established models from the economic literature on bank lending, loss recognition and CEO pay, I investigate whether CPP recipients behaved differently than non-recipient firms in lending activities, acknowledging portfolio losses or altering CEO compensation. Controlling for firm condition, I find that CPP recipients were significantly less likely to lend, but significantly more likely to acknowledge losses and curb CEO pay. Collectively, these results suggest that the government's decision to inject capital into the banking system primarily led to greater transparency about the health of recipient financial institutions. / Economics

Master Thesis - Simona Tothova Abstract This thesis empirically investigates impact of countries' bailouts on probability of SME segment distress. The impact is examined by multi-period logit model where dependent variable is distress rate and explanatory variables includes self-constructed bailout variable, several binary predictors and firm-specific and macroeconomic control variables. The hypotheses are tested on dataset for period from 2005 to 2013 including observations from seven European countries which received financial assistance program (bailout) from Troika. Every bailout from Troika comes with the requirement for austerity measures and our results suggest that impact of bailouts on SMEs probability of distress are depended on the success of application in individual countries and the impacts are more positive in non euro-zone countries. Keywords Bailout, Financial crisis, Credit risk, SME segment, Distress rate Author's e-mail tothova.simona@gmail.com Supervisor's e-mail rado.parrak@gmail.com

Diploma thesis analyses state aid to financial sector provided by central banks and governments in USA and EU during recent financial crisis. In the deepest stage of the crisis central banks provided great amounts of liquidity in order to keep financial institutions afloat. Then, governments provided guarantees for debts which hepled financial institutions to finance themselves at lower costs. Capital injections and asset guarantees were also provided. In aggregate, the government measures had impact on reducing risk premiums but did not support stock prices. BoE and Fed implemented quantitative easing. Its only impact was decrease of yields of government bonds. All measures failed to restore robust growth of credit to real economy. There is a strong effect of the crisis and provided mesures on the increase of government debts.

This dissertation consists of three essays. The first essay examines a general theory of information based on informal contracting. The measurement problem—the disparity of true and measured performances—is at the core of many failures in incentive systems. Informal contracting can be a potential solution since, unlike in formal contracting, it can utilize a lot of qualitative and informative signals. However, informal contracting must be self-enforced. Given this trade-off between informativeness and self-enforcement, I show that a new source of statistical information is economically valuable in informal con- tracting if and only if it is sufficiently informative that it refines the existing pass/fail criterion. I also find that a new information is more likely valuable, as the stock of existing information is large. This information theory has implications on the measurement problem, a puzzle of relative performance evaluation and human resources management. I also provide a methodological contribution. For tractable analysis, the first-order approach (FOA) should be employed. Existing FOA-justifying conditions (e.g. the Mirrlees-Rogerson condition) are so strong that the information ranking condition can be applied only to a small set of information structures. Instead, I find a weak FOA- justifying condition, which holds in many prominent examples (with multi- variate normal or some of univariate exponential family distributions). The second essay analyzes the effectiveness of managerial punishments in mitigating moral hazard problem of government bailouts. Government bailouts of systemically important financial or industrial firms are necessary ex-post but cause moral hazard ex-ante. A seemingly perfect solution to this time-inconsistency problem is saving a firm while punishing its manager. I show that this idea does not necessarily work if ownership and management are separated. In this case, the shareholder(s) of the firm has to motivate the manager by using incentive contracts. Managerial punishments (such as Obama’s $500,000 bonus cap) could distort the incentive-contracting program. The shareholder’s ability to motivate the manager could then be reduced and thereby moral hazard could be exacerbated depending on corporate governance structures and punishment measures, which means the likelihood of future bailouts increases. As an alternative, I discuss the effectiveness of shareholder punishments. The third essay analyzes how education affect workers’ career-concerns. A person’s life consists of two important stages: the first stage as a student and the second stage as a worker. In order to address how a person chooses an education-career path, I examine an integrated model of education and career-concerns. In the first part, I analyze the welfare effect of education. In Spence’s job market signaling model, education as a sorting device improves efficiency by mitigating the lemon market problem. In my integrated model, by contrast, education as a sorting device can be detrimental to social welfare, as it eliminates the work incentive generated by career-concerns. In this regard, I suggest scholarship programs aimed at building human capital rather than sorting students. The second part provides a new perspective on education: education is job-risk hedging device (as well as human capital enhancing or sorting device). I show that highly risk-averse people take high education in order to hedge job-risk and pursue safe but medium-return work path. In contrast, lowly risk-averse people take low education, bear job-risk, and pursue high-risk high-return work path. This explains why some people finish college early and begin start-ups, whereas others take master’s or Ph.D. degrees and find safe but stable jobs. / text