On the welfare equivalence of asset markets and banking in Diamond Dybvig economies

Alexander Zimper

Economics Letters, 2013, vol. 121, issue 3, 356-359

Abstract: Why do people choose bank deposit contracts over a direct participation in asset markets? In their seminal paper, Diamond and Dybvig’s (1983) answer this question by claiming that bank deposit contracts can implement allocations that are welfare superior to asset markets equilibria. The present paper demonstrates that this claim is false whenever the asset market participants are highly rational.

Keywords: Demand deposit contract; Asset market; Asymmetric information (search for similar items in EconPapers)
JEL-codes: G14 G21 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Working Paper: On the Welfare Equivalence of Asset Markets and Banking in Diamond Dybvig Economies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:121:y:2013:i:3:p:356-359

DOI: 10.1016/j.econlet.2013.09.023

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