A Behavioral Model of the Popularity and Regulation of Demandable Liabilities
American Economic Journal: Macroeconomics
vol. 7,
no. 3, July 2015
(pp. 123-52)
Abstract
Overoptimism regarding one's ability to arrive early in a queue is shown to rationalize deposit contracts in which people can withdraw their funds on demand even if consumption takes place later. Capitalized institutions serving overoptimistic depositors emerge in equilibrium even if depositors and bank owners have identical preferences and investment opportunities. Consistent with the evidence, runs can lead people to move their deposits from one intermediary to another. Regulatory policies, including deposit insurance, minimum capital requirements and restrictions on the assets held by depository institutions can increase the ex ante welfare of depositors. (JEL G21, G28, G32, L51)Citation
Rotemberg, Julio J. 2015. "A Behavioral Model of the Popularity and Regulation of Demandable Liabilities." American Economic Journal: Macroeconomics, 7 (3): 123-52. DOI: 10.1257/mac.20130143Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L51 Economics of Regulation
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