Journal article
Demand Deposit Contracts, Suspension of Convertibility, and Optimal Financial Intermediation
Economic theory, Vol.1(3), pp.277-288
09/1991
DOI: 10.1007/BF01210565
Abstract
This paper establishes that an optical contract, combining features of the well-known Diamond and Dybvig (1983) and Townsend (1979, 1983) models, resembles banking. The contract and the associated allocations are derived from a social planner's problem which contains the Diamond and Dybvig and Townsend models as sub-problems. The analysis accomplishes the following. It unites the liquidity preference and cost minimization literatures in a simple way; resolves the demand deposit/demand equity problem in the Diamond and Dybvig model; introduces a notion of efficient bankruptcies into the liquidity preference literature; and raises some questions about the government regulation vs. laissez faire banking debate.
Details
- Title: Subtitle
- Demand Deposit Contracts, Suspension of Convertibility, and Optimal Financial Intermediation
- Creators
- A. P. Villamil - University of Illinois Urbana-Champaign
- Resource Type
- Journal article
- Publication Details
- Economic theory, Vol.1(3), pp.277-288
- Publisher
- Springer-Verlag
- DOI
- 10.1007/BF01210565
- ISSN
- 0938-2259
- eISSN
- 1432-0479
- Language
- English
- Date published
- 09/1991
- Academic Unit
- Economics
- Record Identifier
- 9984380559902771
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