On the effects of deposit insurance and observability on bank runs: an experimental study
AbstractWe study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a bank, who decide between withdrawing or keeping their money deposited. We have three treatments with different levels of deposit insurance which reflect the losses a depositor may incur in the case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors’ actions affect the likelihood of bank runs. When decisions are not observable, higher levels of deposit insurance decrease the probability of bank runs. When decisions are observable, this is not the case. These results suggest that (i) observability might be considered as a partial substitute of deposit insurance, and that (ii) the optimal deposit insurance should take into account the degree of observability.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-05.
Length: 1 pages
Date of creation: Feb 2011
Date of revision:
Publication status: Published by Ivie
deposit insurance; observability; bank runs; experimental economics;
Other versions of this item:
- Hubert Janos Kiss & Ismael Rodriguez‐Lara & Alfonso Rosa‐García, 2012. "On the Effects of Deposit Insurance and Observability on Bank Runs: An Experimental Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1651-1665, December.
- Hubert Janoss Kiss & Ismael Rodriguez Lara & Alfonso Rosa Garcia, 2011. "On the Effects of Deposit Insurance and Observability on Bank Runs: An Experimental Study," Discussion Papers in Economic Behaviour 0211, University of Valencia, ERI-CES.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-EXP-2011-03-05 (Experimental Economics)
- NEP-IAS-2011-03-05 (Insurance Economics)
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.:
- Maliar, Serguei & Maliar, Lilia & Judd, Kenneth, 2011.
"Solving the multi-country real business cycle model using ergodic set methods,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 35(2), pages 207-228, February.
- Kenneth Judd & Lilia Maliar & Serguei Maliar, 2011. "Solving the multi-country real business cycle model using ergodic set methods," Working Papers. Serie AD 2011-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Serguei Maliar & Lilia Maliar & Kenneth L. Judd, 2010. "Solving the Multi-Country Real Business Cycle Model Using Ergodic Set Methods," NBER Working Papers 16304, National Bureau of Economic Research, Inc.
- Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2012.
"Do Social Networks Prevent Bank Runs?,"
Discussion Papers in Economic Behaviour
0812, University of Valencia, ERI-CES.
- Garcia-Rosa, Alfonso & Kiss, Hubert Janos & Rodriguez-Lara, Ismael, 2010. "Do Social Networks Prevent Bank Runs?," UMUFAE Economics Working Papers 9723, DIGITUM. Universidad de Murcia.
- Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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- Markus Kinateder & Hubert Janos Kiss, 2012. "Sequential decisions in the Diamond-Dybvig banking model," Working Papers. Serie AD 2012-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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