Sequential Equilibrium and Competition in a Diamond-Dybvig Banking Model
Bernardino Adao () and
Ted Temzelides ()
Review of Economic Dynamics, 1998, vol. 1, issue 4, pages 859-877
Within the framework of a Diamond-Dybvig model (1983), but with explicitly modelling the autarky choice during the planning period, we demonstrate that a mixed strategy bank run equilibrium that does not rely on sunspots may coexist with the sunspot run equilibrium previously studied in the literature. In a version of the model with multiple banks, there exist sequential equilibrium that imply positive results. However, the zero-profit contract in which runs never occur can be supported as the unique equilibrium outcome if the agents play pure strategies only and their beliefs are restricted to be consistent with a forward induction argument. (Copyright: Elsevier)
JEL-codes: C72 G21 (search for similar items in EconPapers)
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Working Paper: Beliefs, Competition, and Bank Runs (1995)
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Persistent link: http://EconPapers.repec.org/RePEc:red:issued:v:1:y:1998:i:4:p:859-877
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