A bank runs model with a continuum of types
AbstractWe consider a bank runs model à la Diamond and Dybvig (1983)  with a continuum of agent types, indexed by the degree of patience. Much of our understanding based on the two-type model must be modified. The endogenous determination of a cutoff type is central to the analysis. In the case where the bank can credibly commit to a contract, the optimal contract results in socially excessive early withdrawals in every equilibrium of the post-deposit subgame. Thus, even at the best equilibrium the socially efficient outcome is not achieved, and agentsʼ behavior exhibits features of a bank run. In the case where commitment is not possible, there are strictly more early withdrawals and strictly lower welfare than the full-commitment equilibrium.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 147 (2012)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/inca/622869
Bank runs; Continuum of types; Optimal bank contract; Commitment;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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