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Only Paul Could Go To Changchun

Financial Literacy and Bank Runs: an Experimental Analysis

7/31/2017

 
Here.

We set up an experimental coordination game among bank depositors à la Diamond and Dybvig (1983) and analyse the relationships between the outcome of the game and depositors’ financial literacy. In Diamond and Dybvig (1983) there is a fundamental coordination problem stemming from multiple equilibria. In one of these equilibria, all depositors withdraw according to their liquidity needs, the bank is solvent and the economy achieves a Pareto efficient allocation. In the other equilibrium, all depositors decide to prematurely withdraw supported by the belief that everyone else will do so, these behaviours induce a run on bank’s deposits and yield an inefficient equilibrium outcome. Hence, we focus on the behaviour of groups of depositors, which constitute banks, and examine the equilibrium outcomes emerging from depositors’ coordination.

​Eloisa Campioni
Vittorio Larocca
Luca Panaccione
Università di Roma 

Loredana Mirra
School of European Political Economy, Luiss Guido Carli,

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