학회소식
학회소식
[2010년 제 4차] An Economic Theory of Constitutional Governance
작성자 : 관리자
조회수 : 1043
게시일 :
2010-12-09
The economy is modeled as a set of leveraged firms (including households) with potentially superior information who choose their assets to maximize their net-worth, while an efficient, not-for-profit government enacts and administers constitutional rules for free trading of goods, services and assets. In equilibrium, (a) the moral hazard risk stemming from any potentially superior information is efficiently dissipated and (b) the government forms a Safe Bank (i) to offer security of the safe asset (deposits), chosen by some firms, to preclude financial panics, and to grant equal privilege to all firms as per constitution. The model proves that eliminating the Federal Deposit Insurance Corporation and amending the Federal Reserve Act to grant equal privilege to all firms (not just financial firms) is constitutional and efficient, which then makes the Federal Reserve identical to the Safe Bank. In equilibrium, (c) the asset risk premium is negatively related to volatility of a levered firm, (d) the asset volatility and risk premium are both increasing functions of the asset-to-debt ratio, and (e) the minimum threshold asset-to-debt ratio below which the firm goes bankrupt is an increasing function of the asset risk premium.