An Experiment on the Causes of Bank Run Contagions
AbstractTo understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks' liquidity levels are either linked or independent. Left Bank depositors see their bank's liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors' actions signicantly affect Right Bank depositors' behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease cannot calm markets.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1206.
Date of creation: 2012
Date of revision:
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bank runs; contagion; experiment; multiple equilibria.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-03 (All new papers)
- NEP-BAN-2012-11-03 (Banking)
- NEP-CBA-2012-11-03 (Central Banking)
- NEP-EXP-2012-11-03 (Experimental Economics)
- NEP-GTH-2012-11-03 (Game Theory)
- NEP-MON-2012-11-03 (Monetary Economics)
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