Sophisticated banking contracts and fragility when withdrawal information is public

• 成果类型: Article
• 署名作者: Huang, Xuesong
• 署名单位: Sun Yat Sen University
• 刊物名称: THEORETICAL ECONOMICS
• ISSN/ISSBN: 1933-6837
• DOI: 10.3982/TE5178
• 发表日期: 2024-01-01
• 页码: 285-324
• 关键词: Bank runs; sophisticated contracts; public information; forward induction; correlated types; D82; D83; G21

摘要

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.