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Implementing Efficient Allocations In A Model Of Financial Intermediation, Edward J. Green
Implementing Efficient Allocations In A Model Of Financial Intermediation, Edward J. Green
Centre for Public Policy Studies : CPPS Working Paper Series
In a nite-trader version of the Diamond and Dybvig (1983) model, the ex-ante efficient allocation is implementable by a direct mechanism (i.e., each trader announces the type of his own ex-post preference) in which truthful revelation is the strictly dominant strategy for each trader. When the model is modified by formalizing the sequential-service constraint (cf. Wallace, 1988), the truth-telling equilibrium implements the symmetric, ex-ante efficient allocation with respect to iterated elimination of strictly dominated strategies.