IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v147y2012i5p2040-2055.html

Some searches may not work properly. We apologize for the inconvenience.

   My bibliography  Save this article

A bank runs model with a continuum of types

Author

Listed:
  • Azrieli, Yaron
  • Peck, James

Abstract

We consider a bank runs model à la Diamond and Dybvig (1983) [3] with a continuum of agent types, indexed by the degree of patience. Much of our understanding based on the two-type model must be modified. The endogenous determination of a cutoff type is central to the analysis. In the case where the bank can credibly commit to a contract, the optimal contract results in socially excessive early withdrawals in every equilibrium of the post-deposit subgame. Thus, even at the best equilibrium the socially efficient outcome is not achieved, and agentsʼ behavior exhibits features of a bank run. In the case where commitment is not possible, there are strictly more early withdrawals and strictly lower welfare than the full-commitment equilibrium.

Suggested Citation

  • Azrieli, Yaron & Peck, James, 2012. "A bank runs model with a continuum of types," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2040-2055.
    • Handle: RePEc:eee:jetheo:v:147:y:2012:i:5:p:2040-2055
    DOI: 10.1016/j.jet.2012.05.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022053112000567
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jet.2012.05.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-597, June.
    2. Green, Edward J. & Lin, Ping, 2003. "Implementing efficient allocations in a model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 109(1), pages 1-23, March.
    3. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    4. Peck, James & Shell, Karl, 2010. "Could making banks hold only liquid assets induce bank runs?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 420-427, May.
    5. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    6. Ping Lin, 1996. "Banking, incentive constraints, and demand deposit contracts with nonlinear returns (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 27-39.
    7. James Peck & Karl Shell, 2003. "Equilibrium Bank Runs," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 103-123, February.
    8. Gu, Chao, 2011. "Herding and bank runs," Journal of Economic Theory, Elsevier, vol. 146(1), pages 163-188, January.
    9. Neil Wallace, 1990. "A banking model in which partial suspension is best," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 14(Fall), pages 11-23.
    10. Fuente,Angel de la, 2000. "Mathematical Methods and Models for Economists," Cambridge Books, Cambridge University Press, number 9780521585293, November.
    11. Andolfatto, David & Nosal, Ed & Wallace, Neil, 2007. "The role of independence in the Green-Lin Diamond-Dybvig model," Journal of Economic Theory, Elsevier, vol. 137(1), pages 709-715, November.
    12. Ennis, Huberto M. & Keister, Todd, 2009. "Run equilibria in the Green-Lin model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1996-2020, September.
    13. Itay Goldstein & Ady Pauzner, 2005. "Demand–Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, June.
    14. Ennis, Huberto M. & Keister, Todd, 2010. "Banking panics and policy responses," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 404-419, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sim, Khai Zhi, 2024. "Bank bailouts: Moral hazard and commitment," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    2. Catherine Mathieu & Henri Sterdyniak, 2019. "Economic Policies in the Euro Area after the Crisis," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(HS), pages 5-10.
    3. Huberto Ennis & Todd Keister, 2016. "Optimal banking contracts and financial fragility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 335-363, February.
    4. Shakina, Ekaterina & Angerer, Martin, 2018. "Coordination and communication during bank runs," Journal of Behavioral and Experimental Finance, Elsevier, vol. 20(C), pages 115-130.
    5. Jarrow, Robert & Xu, Liheng, 2015. "Bank runs and self-insured bank deposits," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 180-189.
    6. repec:hal:spmain:info:hdl:2441/7fs9bl6i6n9kgbdn581chahh2o is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Todd Keister, 2016. "Bailouts and Financial Fragility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(2), pages 704-736.
    2. Gu, Chao & Monnet, Cyril & Nosal, Ed & Wright, Randall, 2023. "Diamond–Dybvig and beyond: On the instability of banking," European Economic Review, Elsevier, vol. 154(C).
    3. Gu, Chao, 2007. "Asymmetric Information and Bank Runs," Working Papers 07-14, Cornell University, Center for Analytic Economics.
    4. Jarrow, Robert & Xu, Liheng, 2015. "Bank runs and self-insured bank deposits," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 180-189.
    5. Huberto M. Ennis & Todd Keister, 2010. "On the fundamental reasons for bank fragility," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(1Q), pages 33-58.
    6. Sim, Khai Zhi, 2024. "Bank bailouts: Moral hazard and commitment," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    7. Huberto Ennis & Todd Keister, 2016. "Optimal banking contracts and financial fragility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 335-363, February.
    8. Ennis, Huberto M. & Keister, Todd, 2010. "Banking panics and policy responses," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 404-419, May.
    9. Todd Keister & Vijay Narasiman, 2016. "Expectations vs. Fundamentals- driven Bank Runs: When Should Bailouts be Permitted?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 89-104, July.
    10. Kinateder, Markus & Kiss, Hubert János, 2014. "Sequential decisions in the Diamond–Dybvig banking model," Journal of Financial Stability, Elsevier, vol. 15(C), pages 149-160.
    11. Goldstein, Itay & Razin, Assaf, 2015. "Three Branches of Theories of Financial Crises," Foundations and Trends(R) in Finance, now publishers, vol. 10(2), pages 113-180, 30.
    12. Kiss, Hubert Janos & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2014. "Do social networks prevent or promote bank runs?," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 87-99.
    13. Zhiguo He & Asaf Manela, 2016. "Information Acquisition in Rumor‐Based Bank Runs," Journal of Finance, American Finance Association, vol. 71(3), pages 1113-1158, June.
    14. Pablo Kurlat, 2015. "Optimal Stopping in a Model of Speculative Attacks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 212-226, April.
    15. Hoerova, Marie, 2007. "Run-prone banking and asset markets," Working Paper Series 845, European Central Bank.
    16. J. D. P. Bertolai & R. de O. Cavalcanti & P. K. Monteiro, 2019. "Bank runs with many small banks and mutual guarantees at the terminal stage," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 125-176, July.
    17. Renee Courtois Haltom & Bruno Sultanum, 2018. "Preventing Bank Runs," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue March.
    18. R. de O. Cavalcanti & P. K. Monteiro, 2016. "Enriching information to prevent bank runs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 477-494, August.
    19. Tarishi Matsuoka & Makoto Watanabe, 2017. "Banking Panics and Liquidity in a Monetary Economy," Tinbergen Institute Discussion Papers 17-091/VII, Tinbergen Institute.
    20. Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2022. "Experimental bank runs," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 25, pages 347-361, Edward Elgar Publishing.
      • Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2021. "Experimental Bank Runs," ThE Papers 21/03, Department of Economic Theory and Economic History of the University of Granada..

    More about this item

    Keywords

    Bank runs; Continuum of types; Optimal bank contract; Commitment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:147:y:2012:i:5:p:2040-2055. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.