ISSN:
1554-9658
Keywords:
deposit insurance
;
bank runs
;
diamond dybuig model
;
market failure
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract The apparent banking market failure modeled by Diamond and Dybvig [1983] rests on their inconsistently applying their “sequential servicing constraint” to private banks but not to their government deposit insurance agency. Without this inconsistency, banks can provide optimal risk-sharing without tax-based deposit insurance, even when the number of “type 1” agents is stochastic, by employing a “contingent bonus contract.” The threat of disintermediation noted by Jacklin [1987] in the nonstochastic case is still present but can be blocked by contractual trading restrictions. This article complements Wallace [1988], who considers an alternative resolution of this inconsistency.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1023/A:1008626211411
