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Author: | Huo, T.-M. Yu, M.-T. |
Title: | Do bank runs exist in the Diamond-Dybvig model |
Journal: | Journal of Institutional and Theoretical Economics
1994 : SEP, VOL. 150:3, p. 537-542 |
Index terms: | BANKING EQUILIBRIUM ANALYSIS |
Language: | eng |
Abstract: | The seminal work of Diamond and Dybvig (1983) has become a standard reference in the literature of banking. They have shown that, in an environment characterized by incomplete information, bank demand deposit contracts could be used to implement the social optimal allocation attained only under full information. Given such contracts, they also argued that there is another (undesirable) equilibrium in the form of a bank run. This equilibrium occurs because agents expect the bank is going to fail, and henceforth it fails. The modeling approach of Diamond and Dybvig has been subject to numerous extensions, yet, as pointed out by Postlewaite and Vives (1987, 485). |
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