ABSTRACT
The American Recovery and Reinvestment Act (ARRA) of February 2009, commonly referred to as the Stimulus or The Recovery Act, was an economic stimulus package aimed at saving and creating jobs through investments in infrastructure, education, health, and renewable energy, federal tax incentives, and expansion of unemployment benefits and other social welfare provisions. The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage, later revised to $831 billion between 2009 and 2019.3
3. Ownership dispersion and risk bearing
The main insight of the A-L theorem that has an application to the 2008-2009 crisis policy debate has to do with the distribution of the cost of risk-bearing at a firm level. Too big to fail? There may be more to it. If bailouts equal ownership dispersion – that is, every taxpayer becomes a shareholder – then it may be not about the size, but about liquidity risk appraisal. According to Holmström and Tirole (2011), the government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.
