Liquidity runs with endogenous information acquisition

Sanne Zwart

No ECO2005/18, Economics Working Papers from European University Institute

Abstract: This paper discusses a liquidity run model where investors optimally decide whether or not to acquire private information. This endogenizes the dichotomy "private information/no private information". The price of the information makes the equilibrium partitioning of the fundamentals two dimensional. For intermediate fundamentals multiplicity can be eliminated by the private information that investors can have. The dichotomy represents the information structures for low and high prices respectively. However, it presents a distorted view for intermediate prices and fundamentals for which unique equilibria without private information can occur. These results are preserved if the quality of the information is endogenized.

Keywords: Bank runs; information acquisition; coordination games (search for similar items in EconPapers)
JEL-codes: C73 D81 F34 G14 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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