Support for small businesses amid COVID-19

Autor:	Charles Goodhart, Dimitrios P. Tsomocos, Xuan Wang
Přispěvatelé:	Finance, Tinbergen Institute
Jazyk:	angličtina
Rok vydání:	2023
Předmět:	Economics and Econometrics unemployment productivity Coronavirus disease 2019 (COVID-19) adverse selection media_common.quotation_subject Adverse selection allocative efficiency HV Social pathology. Social and public welfare. Criminology private information SDG 17 - Partnerships for the Goals RA0421 Public health. Hygiene. Preventive Medicine ddc:330 Private information retrieval Productivity Adverse Selection media_common HB Economic Theory Receipt Finance Government business.industry screening COVID-19 Government Guarantees D82 Unemployment optimal default sanction E44 Allocative efficiency Business H81 Credit guarantees
Zdroj:	Economica, 90(358), 612-652. Wiley-Blackwell Goodhart, C A E, Tsomocos, D P & Wang, X 2023, ' Support for small businesses amid COVID-19 ', Economica, vol. 90, no. 358, pp. 612-652 . https://doi.org/10.1111/ecca.12460 Goodhart, C, Tsomocos, D & Wang, X 2020 ' Support for Small Businesses amid COVID-19 ' TI Discussion Paper Series, vol. 20-044/IV, IV edn, Tinbergen Institute . < https://papers.tinbergen.nl/20044.pdf > Vrije Universiteit Amsterdam
ISSN:	0013-0427
DOI:	10.1111/ecca.12460
Popis:	A sizeable proportion of enterprises, especially SMEs, in receipt of financial assistance from the government, will fail to repay. In this paper we asked whether, and to what extent, it may be beneficial to apply a screening mechanism to deter those mostly likely to fail to repay from seeking such financial assistance in the first place. The answer largely turns on the relative weights attached for the objectives of stabilisation as compared with allocative efficiency. For this purpose, we develop a two-sector infinite horizon model featuring oligopolistic small businesses and a screening contract in the presence of a pandemic shock with asymmetric information. The adversely affected sector with private information can apply for government loans to reopen businesses once the pandemic has passed. First, we show that a pro-allocation government sets a harsh default sanction to deter entrepreneurs with bad projects from reentering and improves aggregate productivity in the long run, but the economy suffers persistent unemployment in the near term. However, a pro-stabilisation government sets a lenient default sanction or provides full guarantees to reach full employment in the short term, but the economy will be shifted to a lower equilibrium in the long run. The optimal default sanction balances the trade-off between allocation and stabilisation. Then, we derive an analytic measure of “Stabilisation Proclivity” and characterise the parameter space and the macro-financial frictions that render the government either more pro-allocation or more pro-stabilisation. Finally, we solve for the optimal default sanction numerically and conducts comparative statics for various policy analyses.
Databáze:	OpenAIRE
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