Government Deposit Insurance and the Diamond - Dybvig Model
نویسندگان
چکیده
The apparent banking market failure modeled by Diamond and Dybvig [1983] rests on their inconsistently applying their " sequential servicing constraint " to private banks but not to their government deposit insurance agency. Without this inconsistency, banks can provide optimal risk-sharing without tax-based deposit insurance, even when the number of " type 1 " agents is stochastic, by employing a " contingent bonus contract. " The threat of disintermediation noted by Jacklin [1987] in the nonstochastic case is still present but can be blocked by contractual trading restrictions. This article complements Wallace [1988], who considers an alternative resolution of this inconsistency.
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