The role of independence in the Green-Lin Diamond-Dybvig model

Andolfatto, David; Nosal, Ed; Wallace, Neil

doi:10.26509/frbc-wp-200615

Working Paper

The role of independence in the Green-Lin Diamond-Dybvig model

Abstract: 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: Equilibrium (Economics);

https://doi.org/10.26509/frbc-wp-200615