Beliefs, Competition, and Bank Runs

Ted Temzelides () and Bernardino Adao ()

Finance from EconWPA

Abstract: Within the framework of Diamond-Dybvig (1983), the optimal (run free) outcome is shown to be the unique forward induction equilibrium. In a version of the model that posits Bertrand competition among banks, there are sequential equilibria that imply positive profits. However, the zero-profit contract is supported as the unique equilibrium outcome if the agents' beliefs are restricted to the space of beliefs consistent with the forward induction refinement.

JEL-codes: C7 D8 G (search for similar items in EconPapers)
Date: 1995-11-22
Note: 19 pages, TEX(SWP) file
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Related works:
Working Paper: Beliefs, competition, and bank runs (1995)
Journal Article: Sequential Equilibrium and Competition in a Diamond-Dybvig Banking Model
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:9511001

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