Do social networks prevent or promote bank runs?

Kiss, Hubert Janos and Rodriguez-Lara, Ismael and Rosa-García, Alfonso (2014) Do social networks prevent or promote bank runs? Journal of Economic Behavior and Organization, 101 . pp. 87-99. ISSN 0167-2681

This is the latest version of this item.

[img]
Preview
PDF - Final accepted version (with author's formatting)
Download (6MB) | Preview
This item is available in: Library Catalogue

Abstract

We report experimental evidence on the effect of observability of actions on bank runs. We model depositors’ decision-making in a sequential framework, with three depositors located at the nodes of a network. Depositors observe the other depositors’ actions only if connected by the network. Theoretically, a sufficient condition to prevent bank runs is that the second depositor to act is able to observe the first one's action (no matter what is observed). Experimentally, we find that observability of actions affects the likelihood of bank runs, but depositors’ choice is highly influenced by the particular action that is being observed. Depositors who are observed by others at the beginning of the line are more likely to keep their money deposited, leading to less bank runs. When withdrawals are observed, bank runs are more likely even when the mere observation of actions should prevent them.

Item Type: Article
Additional Information: Available online 22 February 2014
Research Areas: A. > Business School > Economics
Item ID: 16921
Useful Links:
Depositing User: Ismael Rodriguez-Lara
Date Deposited: 09 Jun 2015 09:56
Last Modified: 25 Jul 2017 12:05
URI: http://eprints.mdx.ac.uk/id/eprint/16921

Available Versions of this Item

  • Do social networks prevent or promote bank runs? (deposited 09 Jun 2015 09:56) [Currently Displayed]

Actions (login required)

Edit Item Edit Item

Full text downloads (NB count will be zero if no full text documents are attached to the record)

Downloads per month over the past year