Implementing the efficient allocation in a model of financial intermediation
In a finite-trader version of the Diamond-Dybvig (1983) model, the symmetric, ex-ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex-post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf.~Wallace, 1988), the truth-telling equilibrium implements the symmetric, ex-ante efficient allocation with respect to iterated elimination of strictly dominated strategies.
|Date of creation:||31 Oct 1996|
|Date of revision:||31 Oct 1996|
|Note:||LaTeX file. 22 pages. Ignore "over/underfull hbox" messages during processing.|
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- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Krasa, Stefan & Villamil, Anne P., 1992. "Monitoring the monitor: An incentive structure for a financial intermediary," Journal of Economic Theory, Elsevier, vol. 57(1), pages 197-221.
- Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
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