Government Deposit Insurance and the Diamond-Dybvig Model
AbstractThe apparent banking market failure modeled by Diamond and Dybvig  rests on their inconsistently applying their “sequential servicing constraint” to private banks but not to their government deposit insurance agency. Without this inconsistency, banks can provide optimal risk-sharing without tax-based deposit insurance, even when the number of “type 1” agents is stochastic, by employing a “contingent bonus contract.” The threat of disintermediation noted by Jacklin  in the nonstochastic case is still present but can be blocked by contractual trading restrictions. This article complements Wallace , who considers an alternative resolution of this inconsistency. The Geneva Papers on Risk and Insurance Theory (1998) 23, 139–149. doi:10.1023/A:1008626211411
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.
Volume (Year): 23 (1998)
Issue (Month): 2 (December)
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- Ting-Fang Chiang & E-Ching Wu & Min-Teh Yu, 2007. "Premium setting and bank behavior in a voluntary deposit insurance scheme," Review of Quantitative Finance and Accounting, Springer, vol. 29(2), pages 205-222, August.
- Lazopoulos, Ioannis, 2013.
"Liquidity uncertainty and intermediation,"
Journal of Banking & Finance,
Elsevier, vol. 37(2), pages 403-414.
- Ioannis Lazopoulos, 2010. "Optimal Intermediation Under Aggregate Consumption Uncertainty," School of Economics Discussion Papers 0710, School of Economics, University of Surrey.
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