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 bank, who decide between withdrawing or keeping their money deposited. We have three treatments with different levels of deposit insurance which reflect the losses a depositor may incur in the case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors’ actions affect the likelihood of bank runs. When decisions are not observable, higher levels of deposit insurance decrease the probability of bank runs. When decisions are observable, this is not the case. These results suggest that (i) observability might be considered as a partial substitute of deposit insurance, and that (ii) the optimal deposit insurance should take into account the degree of observability.
|Date of creation:||Feb 2011|
|Date of revision:|
|Publication status:||Published by Ivie|
|Contact details of provider:|| Postal: C/ Guardia Civil, 22, Esc 2a, 1o, E-46020 VALENCIA|
Phone: +34 96 319 00 50
Fax: +34 96 319 00 55
Web page: http://www.ivie.es/
More information through EDIRC
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.
- Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009.
"Do social networks prevent bank runs?,"
Working Papers. Serie AD
2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
When requesting a correction, please mention this item's handle: RePEc:ivi:wpasad:2011-05. 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: (Departamento de Edición)
If references are entirely missing, you can add them using this form.