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Optimal Fragile Financial Networks

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  • Fabio Castiglionesi

    (CentER and Tilburg University.)

Abstract

the structure of the decentralized financial network is equal to the efficient one, yielding an expected payoff arbitrarily close to the efficient one. However, the investment decision is not the same. That is, in the decentralized network some banks will gamble as compared to the socially preferred outcome.

Suggested Citation

  • Fabio Castiglionesi, 2008. "Optimal Fragile Financial Networks," 2008 Meeting Papers 658, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:658
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    File URL: https://economicdynamics.org/meetpapers/2008/paper_658.pdf
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    References listed on IDEAS

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    1. Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," European Economic Review, Elsevier, vol. 44(4-6), pages 713-718, May.
    2. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
    3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-762, November.
    4. Ana Babus, 2016. "The formation of financial networks," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 239-272, May.
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