Bank incentives, contract design and bank runs

We study the Diamond-Dybvig [3] model as developed in Green and Lin [5] and Peck and Shell [7]. We dispense with the notion of a bank as a coalition of depositors. Instead, our bank is a self-interested agent with a technological advantage in recordkeeping. We examine the implications of the resulting agency problem for the design of bank contracts and the possibility of bank-run equilibria. For a special case, we discover that the agency problem may or may not simplify the qualitative structure of bank liabilities. We also …nd that the uniqueness result in [5] is robust to our form of agency, but that the non-uniqueness result in [7] is not. JEL codes: D82, G21