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Herding and bank runs

Chao Gu ()

Journal of Economic Theory, 2011, vol. 146, issue 1, 163-188

Abstract: Traditional models of bank runs do not allow for herding effects, because in these models withdrawal decisions are assumed to be made simultaneously. I extend the banking model to allow a depositor to choose his withdrawal time. When he withdraws depends on his consumption type (patient or impatient), his private, noisy signal about the quality of the bank's portfolio, and the withdrawal histories of the other depositors. Some of these runs are efficient in that the bank is liquidated before the portfolio worsens. Others are not efficient; these are cases in which the herd is misled.

Keywords: Bank; runs; Herding; Imperfect; information; Perfect; Bayesian; equilibrium; Optimal; bank; contract; Sequential-move; game; Fundamental-based; bank; runs (search for similar items in EconPapers)
Date: 2011
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Related works:
Working Paper: Herding and Bank Runs (2007) Downloads
Working Paper: Herding and Bank Runs (2007) Downloads
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