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The role of independence in the Green-Lin Diamond-Dybvig model

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Author Info

  • Andolfatto, David
  • Nosal, Ed
  • Wallace, Neil

Abstract

Green and Lin study a version of the Diamond-Dybvig model with a finite number of agents, independence (independent determination of each agent’s type), and sequential service. For special preferences, they show that the ex ante first-best allocation is the unique equilibrium outcome of the model with private information about types. Via a simple argument, it is shown that uniqueness of the truth-telling equilibrium holds for general preferences, and, in particular, for a constrained-efficient allocation whether first-best or not. The crucial assumption is independence.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 137 (2007)
Issue (Month): 1 (November)
Pages: 709-715

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Handle: RePEc:eee:jetheo:v:137:y:2007:i:1:p:709-715

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Web page: http://www.elsevier.com/locate/inca/622869

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References

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  1. Green, Edward J. & Lin, Ping, 2003. "Implementing efficient allocations in a model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 109(1), pages 1-23, March.
  2. Peck, James & Shell, Karl, 2001. "Equilibrium Bank Runs," Working Papers 01-10r, Cornell University, Center for Analytic Economics.
  3. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, vol. 45(1), pages 128-144, June.
  4. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  5. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, vol. 59(4), pages 997-1021, July.
  6. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
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Citations

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Cited by:
  1. Randall Wright & Cyril Monnet & Fabrizio Mattesini, 2009. "Banking: a mechanism design approach," 2009 Meeting Papers 635, Society for Economic Dynamics.
  2. Huberto M. Ennis & Todd Keister, 2008. "Run equilibria in a model of financial intermediation," Staff Reports 312, Federal Reserve Bank of New York.
  3. Markus Kinateder & Hubert Janos Kiss, 2012. "Sequential decisions in the Diamond-Dybvig banking model," Working Papers. Serie AD 2012-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Garcia-Rosa, Alfonso & Kiss, Hubert Janos & Rodriguez-Lara, Ismael, 2010. "Do Social Networks Prevent Bank Runs?," UMUFAE Economics Working Papers 9723, DIGITUM. Universidad de Murcia.
  5. Lazopoulos, Ioannis, 2013. "Liquidity uncertainty and intermediation," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 403-414.
  6. J. D. P. Bertolai & R. de O. Cavalcanti, 2011. "High interest rates: the golden rule for bank stability in the Diamond-Dybvig model," Working Papers 14-2011, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
  7. David Andolfatto & Ed Nosal, 2006. "Moral hazard in the Diamond-Dybvig model of banking," Working Paper 0623, Federal Reserve Bank of Cleveland.
  8. Huberto M. Ennis & Todd Keister, 2010. "On the fundamental reasons for bank fragility," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 33-58.
  9. Ngalawa, Harold & Tchana Tchana, Fulbert & Viegi, Nicola, 2011. "Banking Instability and Deposit Insurance: The Role of Moral Hazard," MPRA Paper 31329, University Library of Munich, Germany.
  10. Todd Keister & Huberto Ennis, 2012. "Optimal banking contracts and financial fragility," 2012 Meeting Papers 179, Society for Economic Dynamics.
  11. Azrieli, Yaron & Peck, James, 2012. "A bank runs model with a continuum of types," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2040-2055.
  12. Zhiguo He & Asaf Manela, 2012. "Information Acquisition in Rumor Based Bank Runs," NBER Working Papers 18513, National Bureau of Economic Research, Inc.

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