Working Paper: NBER ID: w18112
Authors: Edward L. Glaeser
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.
Keywords: government-sponsored enterprises; market failures; corruption; populism; public ownership
JEL Codes: D0; G0; H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corruption (D73) | effectiveness of public interventions (H40) |
| populism (D72) | effectiveness of catastrophic risk insurance (G52) |
| corruption and populism (D73) | outcomes of institutional reforms (O17) |
| public ownership (L32) | social welfare in presence of corruption (I30) |
| populism (D72) | welfare losses from public ownership (D69) |
| balance of political risks (F31) | desirability of institutional reforms (O17) |