Implementing efficient allocations in a model of financial intermediation
Document Type
Journal article
Source Publication
Journal of Economic Theory
Publication Date
3-1-2003
Volume
109
Issue
1
First Page
1
Last Page
23
Keywords
Bank run, Financial intermediation, Implementation
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.
DOI
10.1016/S0022-0531(02)00017-0
Print ISSN
00220531
E-ISSN
10957235
Publisher Statement
Copyright © 2002 Elsevier Science (USA)
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Green, E. J., & Lin, P. (2003). Implementing efficient allocations in a model of financial intermediation. Journal of Economic Theory, 109(1), 1-23. doi: 10.1016/S0022-0531(02)00017-0