Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127263
Authors: 
Vinogradov, Dmitri V.
Year of Publication: 
2007
Series/Report no.: 
Discussion Paper Series, University of Heidelberg, Department of Economics 442
Abstract: 
The paper examines the effects of ambiguity in regulation on the equilibrium allocation. Under ambiguous bailout policy, agents’ suffer from a lack of information with regards to the insolvency resolution method, which would be chosen by the regulator if a financial institution fails. In this case, beliefs of bankers regarding whether an insolvent bank is liquidated, may differ from those of depositors. The beliefs may be asymmetric even if bankers and depositors possess absolutely symmetric information about the policy of the regulator. It is shown that such asymmetry in beliefs can generate an allocative inefficiency of the bank based economy.
Subjects: 
bank bailouts
constructive ambiguity
decision-making
uncertainty
JEL: 
G28
Document Type: 
Working Paper

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