Banking, incentive constraints, and deposit contracts with nonlinear return

Research output: Journal PublicationsJournal Article (refereed)

10 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)27-39
Number of pages13
JournalEconomic Theory
Volume8
Issue number1
DOIs
Publication statusPublished - 1 Jan 1996
Externally publishedYes

Fingerprint

Banking
Incentives
Deposit contracts
Social optimum
Interest rates
Diamond
Incentive compatibility
Discount factor
Separable preferences
Deposits
Factor demand
Insurance

Cite this

@article{efd14eb9f0a04a8f9dab9aa896bba072,
title = "Banking, incentive constraints, and deposit contracts with nonlinear return",
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.",
author = "Ping LIN",
year = "1996",
month = "1",
day = "1",
doi = "10.1007/BF01212010",
language = "English",
volume = "8",
pages = "27--39",
journal = "Economic Theory",
issn = "0938-2259",
publisher = "Springer New York",
number = "1",

}

Banking, incentive constraints, and deposit contracts with nonlinear return. / LIN, Ping.

In: Economic Theory, Vol. 8, No. 1, 01.01.1996, p. 27-39.

Research output: Journal PublicationsJournal Article (refereed)

TY - JOUR

T1 - Banking, incentive constraints, and deposit contracts with nonlinear return

AU - LIN, Ping

PY - 1996/1/1

Y1 - 1996/1/1

N2 - 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.

AB - 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.

UR - http://commons.ln.edu.hk/sw_master/7181

U2 - 10.1007/BF01212010

DO - 10.1007/BF01212010

M3 - Journal Article (refereed)

VL - 8

SP - 27

EP - 39

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 1

ER -