Beliefs, competition, and bank runs
AbstractWithin the framework of Diamond-Dybvig (1983), the optimal (run free) outcome is shown to be the unique forward induction equilibrium. In a version of the model that posits Bertrand competition among banks, there are sequential equilibria that imply positive profits. However, the zero-profit contract is supported as the unique equilibrium outcome if the agents' beliefs are restricted to the space of beliefs consistent with the forward induction refinement.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 95-26.
Date of creation: 1995
Date of revision:
Other versions of this item:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G - Financial Economics
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