Creator: Green, Edward J. and Lin, Ping Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 576 Abstract:
In a finite-trader version of the Diamond-Dybvig (1983) model, the symmetric, ex-ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex-post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace, 1988), the truth-telling equilibrium implements the symmetric, ex-ante efficient allocation with respect to iterated elimination of strictly dominated strategies.
Keyword: Financial intermediation, Bank run, and Implementation Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages