Heterogeneous Banks, Loan Decisions, and their Informational Externality

2002 ◽  
Author(s):  
Jie Dai
Keyword(s):  
Informational Externality

scholarly journals Strategic experimentation in queues

2019 ◽  
Vol 14 (2) ◽  
pp. 647-708
Author(s):  
Martin W. Cripps ◽  
Caroline D. Thomas
Keyword(s):  
Infinite Sequence ◽  
Random Variable ◽  
Equilibrium Behavior ◽  
Long Run ◽  
Good State ◽  
The Social ◽  
Strategic Experimentation ◽  
Geometric Random Variable ◽  
Queue Delay ◽  
Informational Externality

We analyze the social and private learning at the symmetric equilibria of a queueing game with strategic experimentation. An infinite sequence of agents arrive at a server that processes them at an unknown rate. The number of agents served at each date is either a geometric random variable in the good state or zero in the bad state. The queue lengthens with each new arrival and shortens if the agents are served or choose to quit the queue. Agents can observe only the evolution of the queue after they arrive; they, therefore, solve a strategic experimentation problem when deciding how long to wait to learn about the probability of service. The agents, in addition, benefit from an informational externality by observing the length of the queue and the actions of other agents. They also incur a negative payoff externality, as those at the front of the queue delay the service of those at the back. We solve for the long‐run equilibrium behavior of this queue and show there are typically mass exits from the queue, even if the server is in the good state.

Dividend Payouts and Rollover Crises

2019 ◽  
Vol 33 (9) ◽  
pp. 4139-4185 ◽  
Author(s):  
Ragnar E Juelsrud ◽  
Plamen T Nenov
Keyword(s):  
Web Site ◽  
Financial Stability ◽  
Unique Equilibrium ◽  
Short Term ◽  
Oxford University ◽  
Optimal Dividend ◽  
Informational Externality ◽  
Published Paper ◽  
Oxford University Press

Abstract We study dividend payouts when banks face coordination-based rollover crises. Banks in the model can use dividends to both risk shift and signal their available liquidity to short-term lenders, thus, influencing the lenders’ actions. In the unique equilibrium both channels induce banks to pay higher dividends than in the absence of a rollover crisis. In our model banks exert an informational externality on other banks via the inferences and actions of lenders. Optimal dividend regulation that corrects this externality and promote financial stability includes a binding cap on dividends. We also discuss testable implications of our theory. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

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