Publications
Publications
- July 2015
- American Economic Journal: Macroeconomics
A Behavioral Model of the Popularity and Regulation of Demandable Liabilities
By: Julio J. Rotemberg
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.
Keywords
Citation
Rotemberg, Julio J. "A Behavioral Model of the Popularity and Regulation of Demandable Liabilities." American Economic Journal: Macroeconomics 7, no. 3 (July 2015): 123–152.