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
