Optimal bail out policy, conditionality and constructive ambiguity

This paper addresses the issue of the optimal behaviour of the Lender of Last Resort (LOLR) in its microeconomic role regarding individual financial institutions in distress. It has been argued that the LOLR should not intervene at the microeconomic level and let any defaulting institution face the market discipline, as it will be confronted with the consequences of the risks it has taken. By considering a simple costbenefit analysis we show that this position may lack a sufficient foundation. We establish that, instead, uder reasonable assumptions, the optimal policy has to be conditional on the amount of uninsured debt issued by the defaulting bank. Yet in equilibrium, because the rescue policy is costly, the LOLR will not rescue all the banks that fulfill the uninsured debt requirement condition, but will follow a mixed strategy. This we interpret as the confirmation of the "creative ambiguity" principle, perfectly in line with the central bankers claim that it is efficient for them to have discretion in lending to individual institutions. Alternatively, in other cases, when the social cost of a bank's bankruptcy is too high, it is optimal for the LOLR to bail out the insititution, and this gives support to the "too big to fail" policy.

A simple model of multiple equilibria based on risk

This paper shows how risk may aggravate fluctuations in economies with imperfect insurance and multiple assets. A two period job matching model is studied, in which risk averse agents act both as workers and as entrepreneurs. They choose between two types of investment: one type is riskless, while the other is a risky activity that creates jobs.Equilibrium is unique under full insurance. If investment is fully insured but unemployment risk is uninsured, then precautionary saving behavior dampens output fluctuations. However, if both investment and employment are uninsured, then an increase in unemployment gives agents an incentive to shift investment away from the risky asset, further increasing unemployment. This positive feedback may lead to multiple Pareto ranked equilibria. An overlapping generations version of the model may exhibit poverty traps or persistent multiplicity. Greater insurance is doubly beneficial in this context since it can both prevent multiplicity and promote risky investment.

Antibiotic prophylaxis to prevent local infection in oral surgery: use or abuse?

Antibiotics have a well-documented efficacy in the treatment of established infections and as prophylactic agents in medically compromised patients. However, the systematic administration of antibiotics to prevent local infections in fit patients is much more controversial. The aim of this paper is to reflect on the justification for prophylactic usage of antibiotics to prevent wound infection and to reason out the most appropriate antibiotic guidelines taking into account available scientific data and studies by other authors. Numerous clinical trials question the efficacy of antibiotics in preventing wound infection. While some studies establish that antibiotics reduce the incidence of postoperative infections, others compare their efficacy to that of placebo. Thus, scientific literature suggests that every oral surgical intervention is not tributary of systematic antibiotic prophylaxis to prevent local infections. Intrinsic surgical risk factors and the patient"s individual circumstances must be taken into account. Even though the efficacy of other antibiotics cannot be ruled out due to our limited comprehension of the bacteriologic interrelations intervening in the pathogenesis of postextraction local infection, the amoxicillin-clavulanic acid combination theoretically covers the complete odontogenic bacterial spectrum in Spain. When the prophylactic use of antibiotics is indicated, this should be performed preoperatively, at high doses, and its extent should not exceed 24 hours. Special attention should be paid to antiinfectious local measures that can minimize infection risk during the wound"s healing period