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A Game Theoretic Model of Deposit Contracts between the Bank and the Depositor - Extend Study on the Economic Analysis of Bank Run

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  • Jue-Shyan Wang
  • Chiao-Hsin Lin

Abstract

This paper which extends the settings of Chen and Hasan (2008) uses the game theoretic model to focus on the topics of not only interactive policies between a bank and a depositor but bank runs. Our study discovers that depending on different economic terms, the bank will probably propose two different deposit contracts for depositor to accept or not. After the acceptance of the deposit contract, the depositor will choose his withdrawal time on the basis of different liquidity preferences. On the other hand, bank runs occur only when one of the deposit contracts is proposed and the negative information of the investment project is disclosed to depositors.

Suggested Citation

  • Jue-Shyan Wang & Chiao-Hsin Lin, 2014. "A Game Theoretic Model of Deposit Contracts between the Bank and the Depositor - Extend Study on the Economic Analysis of Bank Run," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(3), pages 136-145, July.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:3:p:136-145
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    References listed on IDEAS

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    1. Alonso, Irasema, 1996. "On avoiding bank runs," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 73-87, February.
    2. Yehning Chen, 1999. "Banking Panics: The Role of the First-Come, First-Served Rule and Information Externalities," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 946-968, October.
    3. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-761, July.
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