Diamond and Dybvig's classic theory of financial intermediation: what's missing?

Edward Green and Ping Lin

Quarterly Review, 2000, vol. 24, issue Win, 3-13

Abstract: The article shows that in a finite-trader version of the Diamond and Dybvig model (1983), the ex ante efficient allocation can be implemented as a unique equilibrium. This is so even in the presence of the sequential service constraint, as emphasized by Wallace (1988), whereby the bank must solve a sequence of maximization problems as depositors contact it at different times. A three-trader example with constant relative risk-aversion utility is used in order to illustrate clearly the requirements that the sequential service constraint imposes on implementation.

Keywords: Bank; failures (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (48)

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