Title

Banking, incentive constraints, and deposit contracts with nonlinear return

Document Type

Journal article

Source Publication

Economic Theory

Publication Date

1-1-1996

Volume

8

Issue

1

First Page

27

Last Page

39

Publisher

Springer-Verlag

Abstract

This paper presents two results regarding banking theory: (1) demand deposit contracts are essential in providing insurance against preferences shocks, as in Diamond and Dybvig (1983), if and only if the incentive compatibility conditions bind at the social optimum; and (2) for additively separable preferences with random discount factors, demand deposit contracts have the realistic feature that the interest rate paid is an increasing function of deposit balance.

DOI

10.1007/BF01212010

Print ISSN

09382259

E-ISSN

14320479

Publisher Statement

Copyright © 1996 Springer-Verlag.

Language

English

Recommended Citation

Lin, P. (1996). Banking, incentive constraints, and deposit contracts with nonlinear return. Economic Theory, 8(1), 27-39. doi: 10.1007/BF01212010

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