Optimal Liquidity Provision and Dynamic Incentive Compatibility

Ernst-Ludwig von Thadden

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: The paper analyses the problem of optimal liquidity provision in simple continuous-time general-equilibrium model under uncertainty. It argues that liquidity provision is subject to moral-hazard problems due to the unobservebility of households' characteristics and characterizes incentive-compatible deposit contracts as second mechanisms to provide liquidity.

Keywords: liquidity; deposit contracts; banking; dynamic programming (search for similar items in EconPapers)
JEL-codes: D51 D92 G20 G21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1996-02
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Citations: View citations in EconPapers (4)

Published in Journal of Financial Intermediation, vol. 7 (2), April 1998, pp. 177-197

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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:9604

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