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Optimal Liquidity Provision and Dynamic Incentive Compatibility

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Author Info
Ernst-Ludwig VON THADDEN

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Abstract

The paper analyses the problem of optimal liquidity provision in simple continuous-time general-equilibrium model under uncertainty. It argues that liquidity provision is subject to moral-hazard problems due to the unobservebility of households' characteristics and characterizes incentive-compatible deposit contracts as second mechanisms to provide liquidity.

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Publisher Info
Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9604.

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Length: 29 pages
Date of creation: Feb 1996
Date of revision:
Publication status: Published in Journal of Financial Intermediation, vol. 7 (2), April 1998, pp. 177-197
Handle: RePEc:lau:crdeep:9604

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.65
Web page: http://www.hec.unil.ch/deep/publications-english/e-cahiers.htm

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Related research
Keywords: liquidity; deposit contracts; banking; dynamic programming;

Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
G20 - Financial Economics - - Financial Institutions and Services - - - General
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

Cited by:
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  1. Falko Fecht & Antoine Martin, 2005. "Banks, Markets, and Efficiency," Finance 0507017, EconWPA. [Downloadable!]
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