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The Role of Independence in the Green-Lin Diamond-Dybvig Model

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.

JEL code: D82, G21

Keywords: bank run, implementation

Suggested citation: Andolfatto, David, Ed Nosal, and Neil Wallace, 2006. "The Role of Independence in the Green-Lin Diamond-Dybvig Model," Federal Reserve Bank of Cleveland, Working Paper no. 06-15.

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