Implementing efficient allocations in a model of financial intermediation

Edward J. GREEN, Ping LIN

Research output: Journal PublicationsJournal Article (refereed)

75 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

Keywords

  • Bank run
  • Financial intermediation
  • Implementation

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