| Author: | Lin, P. |
| Title: | Banking, incentive constraints, and demand deposit contracts with nonlinear returns |
| Journal: | Economic Theory
1996 : JUN, VOL. 8:1, p. 27-40 |
| Index terms: | THEORIES ECONOMICS BANKING |
| Language: | eng |
| Abstract: | This paper presents two results regarding banking theory: (1) demand deposit contracts are essential in providing insurance against preferences shocks, as in Diamond and Dybvig (1983), if and only if the incentive compatibility conditions bind at the social optimum; and (2) for additively separable preferences with random discount factors, demand deposit contracts have the realistic feature that the interest rate paid is an increasing function of deposit balance. |
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