On Run-preventing Contract Design

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 n...

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Bibliographic Details
Published in:B.E. journal of theoretical economics 2015-01, Vol.15 (1), p.63-72
Main Author: Ohashi, Yoshihiro
Format: Article
Language:English
Subjects:
bank runs
Company insolvency
Cost allocation
D82
deposit contracts
Deposit insurance
Economic models
G21
implementation
Liquidation
mechanism design
strategy-proof
Studies
Withdrawals
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Summary: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.
ISSN:2194-6124
1935-1704
DOI:10.1515/bejte-2014-0007