On the Effects of Deposit Insurance and Observability on Bank Runs: An Experimental Study
We study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a common bank. Depositors decide in sequence between withdrawing or keeping their money deposited. We have three different treatments in which depositors who keep the money have full insurance, are partially insured, or not insured at all in case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors' actions reduce the likelihood of bank runs. The effect of these variables is not independent. Our data suggest that optimal deposit insurance should take into account the degree of observability: full and partial insurance are equally effective when decisions are observable, whereas full insurance is more likely to prevent bank runs when depositors do not observe other depositors' decisions.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Maliar, Serguei & Maliar, Lilia & Judd, Kenneth, 2011.
"Solving the multi-country real business cycle model using ergodic set methods,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 35(2), pages 207-228, February.
- Kenneth Judd & Lilia Maliar & Serguei Maliar, 2011. "Solving the multi-country real business cycle model using ergodic set methods," Working Papers. Serie AD 2011-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Serguei Maliar & Lilia Maliar & Kenneth L. Judd, 2010. "Solving the Multi-Country Real Business Cycle Model Using Ergodic Set Methods," NBER Working Papers 16304, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:dbe:wpaper:0211. 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: (Emilio Calvo Ramón)
If references are entirely missing, you can add them using this form.