Optimal liquidity provision through a demand deposit scheme: The Jacklin critique revisited
We derive conditions such that optimal liquidity provisions through a demand deposit scheme can be sustainably implemented in a subgame perfect Nash equilibrium under the assumption that renegade investors have free access to ex-post asset markets. As our qualitative main finding we demonstrate that such sustainability is more likely for poor than for rich”scheme participants in terms of future income. By establishing sustainability for low future income populations, our formal analysis therefore offers an important qualification of Jacklin's(1987) influential claim that an optimal demand deposit scheme is not sustainable whenever there exists the possibility of an ex-post asset market.
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| Length: | 25 pages |
| Date of creation: | 2011 |
| Handle: | RePEc:rza:wpaper:208 |
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References listed on IDEAS
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- von Thadden, Ernst-Ludwig, 1999.
"Liquidity creation through banks and markets: Multiple insurance and limited market access,"
European Economic Review,
Elsevier, vol. 43(4-6), pages 991-1006, April.
- Ernst-Ludwig VON THADDEN, 1998. "Liquidity Creation through Banks and Markets : Multiple Insurance and Limited Market Access," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9820, Université de Lausanne, Faculté des HEC, DEEP.
- Ernst-Ludwig VON THADDEN, 1996. "Optimal Liquidity Provision and Dynamic Incentive Compatibility," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9604, Université de Lausanne, Faculté des HEC, DEEP.
- von Thadden, Ernst-Ludwig, 1997. "The term-structure of investment and the banks' insurance function," European Economic Review, Elsevier, vol. 41(7), pages 1355-1374, July.
- Ernst-Ludwig VON THADDEN, 1996. "The Term-Structure of Investment and the Banks' Insurance Function," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9606, Université de Lausanne, Faculté des HEC, DEEP.