Hanson, SamuelScharfstein, DavidSunderam, Aditya2019-01-182019-06-01Hanson, Samuel G., David S. Scharfstein, and Adi Sunderam. "Social Risk, Fiscal Risk, and the Portfolio of Government Programs." Review of Financial Studies (June 2019)0893-94541465-7368http://nrs.harvard.edu/urn-3:HUL.InstRepos:38035039keywords (topics picked by HBS librarians): Risk Management, Government and Politics, Programs, Other places to link: http://www.nber.org/papers/w22763 Link to publisher: https://academic.oup.com/rfs/advance-article-abstract/doi/10.1093/rfs/hhy086/5068154?redirectedFrom=fulltext Hanson, Samuel G., David S. Scharfstein, and Adi Sunderam. "Social Risk, Fiscal Risk, and the Portfolio of Government Programs." Review of Financial Studies (forthcoming). (Internet Appendix Here:http://www.people.hbs.edu/shanson/Govt_Programs_IA_20180623.pdf.)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 fiscal 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 government's portfolio also require large outlays. We characterize the determinants of social and fiscal 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 government's fiscal burden and with characteristics of the economy.en-USEconomics and EconometricsAccountingFinanceJournal Article2019-01-1810.1093/rfs/hhy086