A note on convergence of Peck-Shell and Green-Lin mechanisms in the Diamond-Dybvig model

Ricardo Cavalcanti, Jefferson Bertolai (jbertolai@fearp.usp.br) and Paulo Monteiro

No 722, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We study the effects of population size in the Peck-Shell analysis of bank runs. We find that a contract featuring equal-treatment for almost all depositors of the same type approximates the optimum. Because the approximation also satisfies Green-Lin incentive constraints, when the planner discloses positions in the queue, welfare in these alternative specifications are sandwiched. Disclosure, however, it is not needed since our approximating contract is not subject to runs.

Date: 2011-07-27
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (3)

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