Enriching Information to Prevent Bank Runs

AUTOR(ES)
FONTE

Escola de Pós-Graduação em Economia da FGV

DATA DE PUBLICAÇÃO

27/07/2011

RESUMO

Sequential service in the banking sector, as modeled by Diamond and Dybvig (1983), is a barrier to full insurance and potential source of financial fragility against which deposit insurance is infeasible (Wallace, 1988). In this paper, we pursue a different perspective, viewing the sequence of contacts as opportunities to extract information through a larger message space with commitment to richer promises. As we show, if preferences satisfy a separating property then the desired elimination of dominated strategies (Green and Lin, 2003) occurs even when shocks are correlated. In this manner the sequential service promotes stability.

ASSUNTO(S)

bayesian implementation diamond-dybvig model without runs

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