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The role of independence in the Green-Lin Diamond-Dybvig model

  • David Andolfatto
  • Ed Nosal
  • Neil Wallace

Green and Lin study a version of the Diamond-Dybvig model with a finite number of agents, independence (independent determination of each agent’s type), and sequential service. For special preferences, they show that the ex ante first-best allocation is the unique equilibrium outcome of the model with private information about types. Via a simple argument, it is shown that uniqueness of the truth-telling equilibrium holds for general preferences, and, in particular, for a constrained-efficient allocation whether first-best or not. The crucial assumption is independence.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0615.

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Date of creation: 2006
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Handle: RePEc:fip:fedcwp:0615
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  1. Abreu, Dilip & Sen, Arunava, 1991. "Virtual Implementation in Nash Equilibrium," Econometrica, Econometric Society, vol. 59(4), pages 997-1021, July.
  2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  3. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  4. Edward J. Green, 1995. "Implementing Efficient Allocations in a Model of Financial Intermediation," Meeting papers 9506001, EconWPA.
  5. Matsushima, Hitoshi, 1988. "A new approach to the implementation problem," Journal of Economic Theory, Elsevier, vol. 45(1), pages 128-144, June.
  6. Peck, James & Shell, Karl, 2001. "Equilibrium Bank Runs," Working Papers 01-10r, Cornell University, Center for Analytic Economics.
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