Liquidity runs with endogenous information acquisition
AbstractThis paper discusses a liquidity run model where investors optimally decide whether or not to acquire private information. This endogenizes the dichotomy "private information/no private information". The price of the information makes the equilibrium partitioning of the fundamentals two dimensional. For intermediate fundamentals multiplicity can be eliminated by the private information that investors can have. The dichotomy represents the information structures for low and high prices respectively. However, it presents a distorted view for intermediate prices and fundamentals for which unique equilibria without private information can occur. These results are preserved if the quality of the information is endogenized.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2005/18.
Date of creation: 2005
Date of revision:
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Bank runs; information acquisition; coordination games;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-FIN-2006-02-12 (Finance)
- NEP-FMK-2006-02-12 (Financial Markets)
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