On the Welfare Equivalence of Asset Markets and Banking in Diamond Dybvig Economies
Why do people choose bank deposit contracts over a direct participation in asset markets? In their seminal paper, Diamond and Dybvig (1983) answer this question by claiming that bank deposit contracts can implement allocations that are welfare superior to asset markets equilibria. The present paper demonstrates that this claim is false whenever the asset market participants are highly rational.
|Date of creation:||Sep 2013|
|Date of revision:|
|Contact details of provider:|| Postal: PRETORIA, 0002|
Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://www.up.ac.za/economics
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.:
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, June.
- Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
- Hellwig, Martin, 1994. "Liquidity provision, banking, and the allocation of interest rate risk," European Economic Review, Elsevier, vol. 38(7), pages 1363-1389, August.
When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201356. 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: (Rangan Gupta)
If references are entirely missing, you can add them using this form.