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Working Paper

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.

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.