Abstract
Purpose This paper addresses that wrong bailout programs would end up with not only misuse of public money but also lowering aggregate productivity of industry. Public resources should be allocated towards high-productivity firms. This paper guides how a government can screen firms. Design/Methodology/Approach This paper presents a principal-agent model of incorporating accountability. It will provide policy-makers an incentive scheme to extract private information of productivity from firms. Findings Whenever demand parameter is known, the firm profit can be expected using the information of productivity. Thus, the government normalizes distribution of firm profits based on reported productivity. If the realized profit falls significantly below the confidence interval, the firm is presumed to be a liar and is punished. That is, a bail-out firm takes accountability of own report. Accountability helps bailout programs to be truthfully implementable. Research Implications Public resources should be allocated towards high-productivity firms. Thus, firm screening is needed.
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