Abstract
The article shows that in a finite-trader version of the Diamond and Dybvig model (1983), the ex ante efficient allocation can be implemented as a unique equilibrium. This is so even in the presence of the sequential service constraint, as emphasized by Wallace (1988), whereby the bank must solve a sequence of maximization problems as depositors contact it at different times. A three-trader example with constant relative risk-aversion utility is used in order to illustrate clearly the requirements that the sequential service constraint imposes on implementation.
| Original language | English |
|---|---|
| Pages (from-to) | 3-13 |
| Number of pages | 11 |
| Journal | Federal Reserve Bank of Minneapolis Quarterly Review |
| Volume | 24 |
| Issue number | 1 |
| Publication status | Published - 1 Jan 2000 |