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1. Bail-ins and Bailouts: Incentives, Connectivity, and Systemic Stability

   Benjamin Bernard, Agostino Capponi (January 2022, The journal of political economy)

   Harald Uhlig (Ed.)

   This paper endogenizes intervention in financial crises as the strategic negotiation between a regulator and creditors of distressed banks. Incentives for banks to contribute to a voluntary bail-in arise from their exposure to fi nancial contagion. In equilibrium, a bail-in is possible only if the regulator's threat to not bail out insolvent banks is credible. Contrary to models without intervention or with government bailouts only, sparse networks enhance welfare for two main reasons: they improve the credibility of the regulator's no-bailout threat for large shocks and they reduce free-riding incentives among bail-in contributors when the threat is credible 

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2. Credit Freezes, Equilibrium Multiplicity, and Optimal Bailouts in Financial Networks

   https://doi.org/10.1093/rfs/hhad096  

   Jackson, Matthew O; Pernoud, Agathe (January 2024, The Review of Financial Studies)

   Abstract We analyze how interdependencies in financial networks can lead to self-fulfilling insolvencies and multiple possible equilibrium outcomes. Multiplicity arises if a certain type of dependency cycle exists in the network. We show that finding the cheapest bailout policy that prevents self-fulfilling insolvencies is computationally hard, but that the optimal policy has intuitive features in some typical network structures. Leveraging indirect benefits ensures systemic solvency at a cost that never exceeds half of the overall shortfall. In core-periphery networks, it is optimal to bail out peripheral banks first as opposed to core banks. 

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3. Creating Moves to Opportunity: Experimental Evidence on Barriers to Neighborhood Choice

   Bergman, Peter; DeLuca, Stefanie; Hendren, Nathaniel; Katz, Lawrence F; Palmer, Christopher (January 2023, American economic review)

   Low-income families in the United States tend to live in neighborhoods that offer limited opportunities for upward income mobility. One potential explanation for this pattern is that families prefer such neighborhoods for other reasons, such as affordability or proximity to family and jobs. An alternative explanation is that they do not move to high-opportunity areas because of a lack of information or barriers that prevent them from making such moves. We test between these explanations using a twophase randomized controlled trial with housing voucher recipients in Seattle and King County. We first provided a bundle of resources to facilitate moves to high-upward-mobility neighborhoods: information about high-opportunity areas, short-term financial assistance, customized assistance during the housing search process, and connections to landlords. This bundled intervention increased the fraction of families who moved to high-upward-mobility areas from 15% in the control group to 53% in the treatment group. To understand the mechanisms underlying this effect, we ran a second phase with three arms: (1) information about high-opportunity areas and financial assistance only; (2) reduced support services in addition to information and financial assistance; and (3) full support services, as in the original bundled intervention. The full services had five times as large a treatment effect as the information and financial incentives treatment and three times as large an effect as the reduced support intervention, showing that high-intensity, customized support enables moves to opportunity. Interviews with randomly selected families reveal that the program succeeded by relaxing families’ bandwidth constraints and addressing their specific needs, from identifying suitable units to providing emotional support to brokering with landlords. Families induced to move to higher opportunity areas tend to stay in their new neighborhoods in subsequent years and report higher levels of neighborhood satisfaction after moving. Our findings imply that many low-income families do not have a strong preference to stay in low-opportunity areas and that barriers in the housing search process are a central driver of residential segregation by income. 

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4. Stress tests and information disclosure: An experimental analysis

   https://doi.org/10.1016/j.jbankfin.2022.106691  

   Cox, Caleb; Davis, Douglas; Korenok, Oleg; Lightle, John (September 2023, Journal of Banking & Finance)

   Kirchler, Michael; Weitzel, Utz (Ed.)

   To improve the stability of the banking system the Dodd-Frank Act mandates that central banks conduct periodic evaluations of banks’ financial conditions. An intensely debated aspect of these ‘stress tests’ re- gards how much of that information generated by stress tests should be disclosed to financial markets. This paper uses an environment constructed from a model by Goldstein and Leitner (2018) to gain some behavioral insight into the policy tradeoffs associated with disclosure. Experimental results indicate that variations in disclosure conditions are sensitive to overbidding for bank assets. Absent overbidding, how- ever, optimal disclosure robustly improves risk sharing even when banks behave non-optimally. 

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5. The Role of Professional Product Reviewers in Evaluating Security and Privacy

   Guo, Wentao; Walter, Jason; Mazurek, Michelle L (August 2023, USENIX)

   Consumers who use Internet-connected products are often exposed to security and privacy vulnerabilities that they lack time or expertise to evaluate themselves. Can professional product reviewers help by evaluating security and privacy on their behalf? We conducted 17 interviews with product reviewers about their procedures, incentives, and assumptions regarding security and privacy. We find that reviewers have some incentives to evaluate security and privacy, but they also face substantial disincentives and challenges, leading them to consider a limited set of relevant criteria and threat models. We recommend future work to help product reviewers provide useful advice to consumers in ways that align with reviewers' business models and incentives. These include developing usable resources and tools, as well as validating the heuristics they use to judge security and privacy expediently. 

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