Liquidity and Inefficient Investment
We study the role of fiscal policy in a complete markets model where the only friction is the nonpledgeability of human capital. We show that the competitive equilibrium is constrained inefficient, leading to too little risky investment. We also show that fiscal policy following a large negative shock can increase ex ante welfare. Finally, we show that if the government cannot commit to the promised level of fiscal intervention, the ex post optimal fiscal policy will be too small from an ex ante perspective.
-
-
Copy CitationOliver D. Hart and Luigi Zingales, "Liquidity and Inefficient Investment," NBER Working Paper 19184 (2013), https://doi.org/10.3386/w19184.Download Citation
Published Versions
Oliver Hart & Luigi Zingales, 2015. "LIQUIDITY AND INEFFICIENT INVESTMENT," Journal of the European Economic Association, vol 13(5), pages 737-769. citation courtesy of 
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
