• David Scharfstein
  • Samuel Hanson
  • Adi Sunderam


Social Risk, Fiscal Risk, and the Portfolio of Government Program. Samuel Hanson, David Scharfstein, Adi Sunderam, June 2018, Paper, "We develop a model of government portfolio choice in which a benevolent government chooses the scale of risky projects in the presence of market failures and tax distortions. These two frictions generate motives to manage social risk and scale risk. Social risk management makes attractive programs that ameliorate market failures in bad economic times. Fiscal risk management makes unattractive programs that entail large government outlays at times when other programs in the governments portfolio also require large outlays. We characterize the determinants of social and scale risk and argue that these two risk management motives often conflict. Using the model, we explore how the attractiveness of different financial stability programs varies with the governments scale burden and with characteristics of the economy." Link