Private and social welfare gains in the Diamond-Dybvig model: A rationale for the existence of banks

Marco Guerrazzi

MPRA Paper from University Library of Munich, Germany

Abstract: In this note, I evaluate the private and the social welfare gains that in the Diamond-Dybvig model of bank runs characterize the switch from a decentralized to a centralized equilibrium that may hold even in an atomistic environment with banking intermediation. Specifically, relying on logarithmic preferences, I show that such a social welfare gain is an increasing function of the discount rate of more patient agents. Moreover, I show that for each level of the discount rate of patient agents, there is an optimal value of the proportion of these agents in the economy that maximizes the social welfare gain.

Keywords: Bank runs; Private and social welfare gains; Banking intermediation; Bernoulli distribution (search for similar items in EconPapers)
JEL-codes: D02 E02 E44 G21 (search for similar items in EconPapers)
Date: 2024-09-16
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mic and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122102

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