Sequential equilibrium and competition in a diamond-dybvig banking model

Bernardino Adão*, Ted Temzelides

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


Within the framework of a Diamond-Dybvig model [J. Polit. Econ.91(1983), 401-419], but with explicitly modelling the autarky choice during the planning period, we demonstrate that a mixed strategy bank run equilibrium that does not rely on sunspots may coexist with the sunspot run equilibrium previously studied in the literature. In a version of the model with multiple banks, there exist sequential equilibria that imply positive profits. However, the zero-profit contract in which runs never occur can be supported as the unique equilibrium outcome if the agents play pure strategies only and their beliefs are restricted to be consistennt with a forward induction argument.Journal of Economic LiteratureClassification Numbers: C72, G21

Original languageEnglish
Pages (from-to)859-877
Number of pages19
JournalReview of Economic Dynamics
Issue number4
Publication statusPublished - Oct 1998
Externally publishedYes


  • Bank runs
  • Competition
  • Forward induction
  • Curb equilibrium


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