Assessing the Likelihood of Panic-Based Bank Runs
Conditional on the considered equilibrium, the probability of a bank run in the demand-deposit contract models of Bryant (1980) and of Diamond and Dybvig (1983) is either one or zero. In contrast, we establish the existence of an interval - being a strict subset of the unit-interval - of possible bank run probabilities for a two-player demand-deposit contract model where players receive independent signals about their liquidity desire from a continuous type space. As our main result we demonstrate that this interval reduces to a unique probability of a panic-based bank strictly smaller than one if and only if there exist types for which not running on the bank is a dominant action. In addition to existing models of bank runs such as, e.g., Goldstein and Pauzner (2005), our approach also provides some assessment of the likelihood of a bank run if there are no types for which not running on the bank is a dominant action. As a consequence, we can investigate the comparative statics of the likelihood of bank runs with respect to a larger range of payoff parameters than considered in previous models. Furthermore, we derive a technical result by which the findings of Morris and Shin (2005) on the dominance-solvability of binary action games with strategic complements also apply to nice games in the sense of Moulin (1984) if players' best response functions are increasing.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 6 (2006)
Issue (Month): 1 (December)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/bejte|
When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:contributions.6:y:2006:i:1:n:9. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.