Optimal Diamond–Dybvig mechanism in large economies with aggregate uncertainty

Nonparametric Estimation of the Diamond-Dybvig Banking Model

“…The model builds on Sultanum (2014), which is an extentision of Peck and Shell (2003) with a continuum of agents. The advantage of this setting is that the optimal bank contract can be easily characterized by a second-order di¤erential equation, which will be used in the proposed estimation procedure.…”

“…As a result, an insurance arrangement is desirable in order to improve depositors' ex-ante welfare. Following Peck and Shell (2003) and, more closely, Sultanum (2014), I focus on a form bank contract where resources are deposited in a bank and depositors can withdraw resources if they want to. That is, in period zero, all resources are deposited in the bank.…”

“…In period two, the bank distributes the amount left to those who did not withdraw in period one. Figure 1, extracted from Sultanum (2014), depicts the sequence of actions.…”

“…The approach to address this question and understand whether the Diamond-Dybvig model actually generates bank runs or not has been to build examples where bank runs do exist-see, for instance, Peck and Shell (2003), Ennis and Keister (2009b), and Sultanum (2014). The examples of bank runs are built with particular distributions of liquidity needs and other primitives, such as preferences.…”

“…In this paper, I construct a structural estimator for the distribution of liquidity needs in the version of the Diamond-Dybvig model studied in Sultanum (2014). The data requirement for the estimator is that the econometrician observes the total amount withdrawn.…”