Implementing efficient allocations in a model of financial intermediation

Edward J. GREEN, Ping LIN

Research output: Journal PublicationsJournal Article (refereed)

69 Citations (Scopus)

Abstract

In a finite-trader version of the Diamond and Dybvig (J. Polit. Econ. 91 (1983) 401) model, the ex ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace (Fed. Reserve Bank Minneapolis Quart. Rev. 12 (1988) 3)), the truth-telling equilibrium implements the symmetric, ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies.
Original languageEnglish
Pages (from-to)1-23
Number of pages23
JournalJournal of Economic Theory
Volume109
Issue number1
DOIs
Publication statusPublished - 1 Mar 2003

Fingerprint

Financial intermediation
Traders
Efficient allocation
Bank reserves
Diamond
Truth-telling
Dominant strategy

Keywords

  • Bank run
  • Financial intermediation
  • Implementation

Cite this

@article{c28db2ca1fc548d0bb82c3e834d9bc74,
title = "Implementing efficient allocations in a model of financial intermediation",
abstract = "In a finite-trader version of the Diamond and Dybvig (J. Polit. Econ. 91 (1983) 401) model, the ex ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace (Fed. Reserve Bank Minneapolis Quart. Rev. 12 (1988) 3)), the truth-telling equilibrium implements the symmetric, ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies.",
keywords = "Bank run, Financial intermediation, Implementation",
author = "GREEN, {Edward J.} and Ping LIN",
year = "2003",
month = "3",
day = "1",
doi = "10.1016/S0022-0531(02)00017-0",
language = "English",
volume = "109",
pages = "1--23",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",
number = "1",

}

Implementing efficient allocations in a model of financial intermediation. / GREEN, Edward J.; LIN, Ping.

In: Journal of Economic Theory, Vol. 109, No. 1, 01.03.2003, p. 1-23.

Research output: Journal PublicationsJournal Article (refereed)

TY - JOUR

T1 - Implementing efficient allocations in a model of financial intermediation

AU - GREEN, Edward J.

AU - LIN, Ping

PY - 2003/3/1

Y1 - 2003/3/1

N2 - In a finite-trader version of the Diamond and Dybvig (J. Polit. Econ. 91 (1983) 401) model, the ex ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace (Fed. Reserve Bank Minneapolis Quart. Rev. 12 (1988) 3)), the truth-telling equilibrium implements the symmetric, ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies.

AB - In a finite-trader version of the Diamond and Dybvig (J. Polit. Econ. 91 (1983) 401) model, the ex ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace (Fed. Reserve Bank Minneapolis Quart. Rev. 12 (1988) 3)), the truth-telling equilibrium implements the symmetric, ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies.

KW - Bank run

KW - Financial intermediation

KW - Implementation

UR - http://commons.ln.edu.hk/sw_master/2139

U2 - 10.1016/S0022-0531(02)00017-0

DO - 10.1016/S0022-0531(02)00017-0

M3 - Journal Article (refereed)

VL - 109

SP - 1

EP - 23

JO - Journal of Economic Theory

JF - Journal of Economic Theory

SN - 0022-0531

IS - 1

ER -