To understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks' liquidity levels are either linked or independent. Left Bank depositors see their bank's liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors' actions significantly affect Right Bank depositors' behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease does not calm depositors.
|Number of pages||13|
|Journal||European Economic Review|
|State||Published - 1 Nov 2014|
Bibliographical noteFunding Information:
We are very grateful to Tim Miller for his outstanding help in programming the software and running the sessions. Financial support from the University of Exeter Business School is also gratefully acknowledged. We also thank Mardi Dungey, Dan Friedman, Ro׳i Zultan, seminar participants at Bar Ilan University, Ben-Gurion University, Copenhagen Business School, University of Düsseldorf, Hebrew University, University of Exeter, University of Guelph, University of Haifa, Queen Mary University of London, University of Queensland, the University of Tasmania, the 2012 ESA International Meeting at NYU, 2012 ESA American Meeting at U. Arizona, the 2014 RES Conference, as well as two anonymous referees and an Associate Editor for helpful comments and discussions. All remaining errors are ours alone.
© 2014 Elsevier B.V.
- Bank runs
- Multiple equilibria
ASJC Scopus subject areas
- Economics and Econometrics