Run Equilibria in the Green-Lin Model of Financial Intermediation Articles uri icon

authors

  • ENNIS, HUBERTO MARIA
  • KEISTER, TODD

publication date

  • September 2009

start page

  • 1996

end page

  • 2020

issue

  • 5

volume

  • 144

International Standard Serial Number (ISSN)

  • 0022-0531

Electronic International Standard Serial Number (EISSN)

  • 1095-7235

abstract

  • We study the Green-Lin model of financial intermediation [E.J. Green, P. Lin, Implementing efficient allocations in a model of financial intermediation, J. Econ. Theory 109 (2003) 1-23] under a more general specification of the distribution of types across agents. We derive the efficient allocation in closed form. We show that, in some cases, the intermediary cannot uniquely implement the efficient allocation using a direct revelation mechanism. In these cases, the mechanism also admits an equilibrium in which some (but not all) agents "run" on the intermediary and withdraw their funds regardless of their true liquidity needs. In other words, self-fulfilling runs can arise in a generalized Green-Lin model and these runs are necessarily partial, with only some agents participating.