A Hierarchical Agency Model of Deposit Insurance
AbstractThis paper develops a hierarchical agency model of deposit insurance. The main purpose is to undertake a game theoretic analysis of the consequences of deposit insurance schemes and their effects on monitoring incentives for banks. Using this simple framework, we analyze both risk- independent and risk-dependent premium schemes along with reserve requirement constraints. The results provide policymakers with not only a better understanding of the effects of deposit insurance on welfare and the problem of moral hazard, but also the policy implications implied in the design of de- posit insurance schemes. Our finding is consistent with the empirical research on depositor discipline.
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Bibliographic InfoPaper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 410.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-BAN-2010-10-09 (Banking)
- NEP-CTA-2010-10-09 (Contract Theory & Applications)
- NEP-IAS-2010-10-09 (Insurance Economics)
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