Bailouts and the Preservation of Competition.

James Roberts and Andrew Sweeting , American Economic Journal: Microeconomics Forthcoming , July 2015.

We estimate the value of competition in United States Forest Service (USFS) timber auctions, in the context of the Reagan administration’s bailout of firms that faced substantial losses on existing contracts. We use a model with endogenous entry by asymmetric firms, allowing survivors to respond to the exit of bailed-out firms by entering more auctions and for these marginal entrants to have lower values than firms that would choose to enter in any event, a selective entry effect. Observed asymmetries and selective entry contribute to us finding that the bailout may have increased USFS revenues in subsequent auctions quite substantially. 

Links to Researchers