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On Run-preventing Contract Design

Author

Listed:
  • Ohashi Yoshihiro

    (Center for Finance Research, Waseda University, 1-4-1, Nihonbashi, Chuo-ku, Tokyo, Japan)

Abstract

This study considers how to implement an efficient allocation of a financial intermediation model, including liquidation costs. The main result shows that there is a mechanism such that, for any liquidation cost, an efficient allocation is implementable in strictly dominant strategies. There is no need for third-party assistance, such as deposit insurance. In addition, the mechanism is tolerant of a small, unexpected shock caused by premature withdrawals.

Suggested Citation

  • Ohashi Yoshihiro, 2015. "On Run-preventing Contract Design," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(1), pages 63-72, January.
    • Handle: RePEc:bpj:bejtec:v:15:y:2015:i:1:p:10:n:6
    DOI: 10.1515/bejte-2014-0007
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    References listed on IDEAS

    as
    1. Antoine Martin, 2006. "Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(1), pages 197-211, May.
    2. Thakor, Anjan V. & Boot, Arnoud (ed.), 2008. "Handbook of Financial Intermediation and Banking," Elsevier Monographs, Elsevier, edition 1, number 9780444515582.
    3. Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    deposit contracts; bank runs; mechanism design; strategy-proof; implementation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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