The Role of Independence in the Green-Lin Diamond-Dybvig Model
13 Pages Posted: 19 Oct 2007
Date Written: November 2006
Green and Lin study a version of the Diamond-Dybvig model with a finite number of agents, independence (independent determination of each agent's type), and sequential service. For special preferences, they show that the ex ante first-best allocation is the unique equilibrium outcome of the model with private information about types. Via a simple argument, it is shown that uniqueness of the truth-telling equilibrium holds for general preferences, and, in particular, for a constrained-efficient allocation whether first-best or not. The crucial assumption is independence.
Keywords: bank run, implementation
JEL Classification: D82, G21
Suggested Citation: Suggested Citation