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 EconWPA in its series Finance with number 9511001.
Length: 19 pages
Date of creation: 22 Nov 1995
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Note: 19 pages, TEX(SWP) file
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Other versions of this item:
- Bernardino Adao & Ted Temzelides, 1998. "Sequential Equilibrium and Competition in a Diamond-Dybvig Banking Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 859-877, October.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G - Financial Economics
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