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Implementing efficient allocations in a model of financial intermediation

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Author Info
Edward J. Green
Ping Lin

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Abstract

In a finite-trader version of the Diamond-Dybvig (1983) model, the symmetric, ex-ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex-post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace, 1988), the truth-telling equilibrium implements the symmetric, ex-ante efficient allocation with respect to iterated elimination of strictly dominated strategies.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 576.

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Date of creation: 1996
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Publication status: Published in Journal of Economic Theory (Vol. 109, No. 1, March 2003, pp. 1-23)
Handle: RePEc:fip:fedmwp:576

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Keywords: Econometric models;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December. [Downloadable!] (restricted)
  2. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Andolfatto & Ed Nosal & Neil Wallace, 2006. "The role of independence in the Green-Lin Diamond-Dybvig model," Working Paper 0615, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  2. Hoerova, Marie, 2005. "Financial Deepening and Bank Runs," Working Papers 05-07, Cornell University, Center for Analytic Economics. [Downloadable!]
  3. Ted Temzelides, 1995. "Evolution, Coordination, and Banking Panics," Finance 9511002, EconWPA. [Downloadable!]
    Other versions:
  4. Borys Grochulski, 2008. "Limits to redistribution and intertemporal wedges : implications of Pareto optimality with private information," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 173-196. [Downloadable!]
  5. Huberto M. Ennis & Todd Keister, 2008. "Run equilibria in a model of financial intermediation," Staff Reports 312, Federal Reserve Bank of New York. [Downloadable!]
  6. Huberto M. Ennis & Todd Keister, 2007. "Bank runs and institutions : the perils of intervention," Working Paper 07-02, Federal Reserve Bank of Richmond. [Downloadable!]
  7. Huberto M. Ennis & Todd Keister, 2007. "Commitment and equilibrium bank runs," Staff Reports 274, Federal Reserve Bank of New York. [Downloadable!]
  8. David Andolfatto & Ed Nosal, 2006. "Moral hazard in the Diamond-Dybvig model of banking," Working Paper 0623, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  9. Yorulmazer, Tanju, 2003. "Herd Behavior, Bank Runs and Information Disclosure," MPRA Paper 9513, University Library of Munich, Germany. [Downloadable!]
  10. J. Martel & M. Mokrane, 2002. "Bank Financing Strategies, Diversification and Securitization," THEMA Working Papers 2002-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  11. James Peck & Karl Shell, 2003. "Bank Portfolio Restrictions and Equilibrium Bank Runs," Levine's Bibliography 666156000000000077, UCLA Department of Economics. [Downloadable!]
    Other versions:
  12. David Backus & Silverio Foresi & Liuren Wu, 2002. "Contagion in Financial Markets," Finance 0207009, EconWPA. [Downloadable!]
  13. Edward J. Green & Ping Lin, 2000. "Diamond and Dybvig's classic theory of financial intermediation : what's missing?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-13. [Downloadable!]
  14. Guilherme Carmona, 2004. "On the Existence of Equilibrium Bank Runs in a Diamond-Dybvig Environment," Finance 0404009, EconWPA. [Downloadable!]
    Other versions:
  15. Ted Temzelides & Bernandino Adao, 1995. "Beliefs, Competition, and Bank Runs," Finance 9511001, EconWPA. [Downloadable!]
    Other versions:
  16. Gerald P. Dwyer, Jr. & Margarita Samartín, 2006. "Why do banks promise to pay par on demand?," Working Paper 2006-26, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  17. Harald Uhlig, 2009. "A Model of a Systemic Bank Run," NBER Working Papers 15072, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Marie Hoerova, 2007. "Run-prone banking and asset markets," Working Paper Series 845, European Central Bank. [Downloadable!]
  19. Carmona, Guilherme & Leoni, Patrick, 2003. "Equilibrium Non-Panic Bank Failures," FEUNL Working Paper Series wp424, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
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