Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296460 
Authors: 
Year of Publication: 
2024
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 19 [Issue:] 1 [Year:] 2024 [Pages:] 285-324
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
I study whether self-fulfilling bank runs can occur when banks use sophisticated contracts and withdrawal decisions are public information. In a finite-agent version of Diamond and Dybvig (1983) with correlated types, I first present an example in which a bank run perfect Bayesian equilibrium exists. However, its existence relies on off-path beliefs that are unreasonable in terms of forward induction. To discipline beliefs, I use forward induction equilibrium (Cho, 1987) as the solution concept. I show that, whenever the allocation rule is strictly incentive compatible, the truth-telling strategy is the unique forward induction equilibrium in the withdrawal game, and no bank run occurs. Therefore, with forward induction, sophisticated contracts can prevent bank runs when there is public information about withdrawal decisions.
Subjects: 
Bank runs
correlated types
forward induction
public information
sophisticated contracts
JEL: 
D82
D83
G21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.