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Implementing the efficient allocation in a model of financial intermediation

  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)

  • Ping Lin

    (Southern Methodist University)

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.

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Paper provided by EconWPA in its series Finance with number 9610006.

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Length: 22 pages
Date of creation: 31 Oct 1996
Date of revision: 31 Oct 1996
Handle: RePEc:wpa:wuwpfi:9610006
Note: LaTeX file. 22 pages. Ignore "over/underfull hbox" messages during processing.
Contact details of provider: Web page: http://128.118.178.162

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  1. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
  2. 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.
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