In a bank run in the Diamond-Dybvig model, it is in any depositor's interest to request withdrawal of his or her deposit because

Question

Quizplus · Accepted Answer

In the Diamond-Dybvig model, a bank run occurs when depositors fear that there will not be enough liquid assets to fulfill all withdrawal requests, leading to a self-fulfilling panic where everyone rushes to withdraw their money. In this situation, it is better for individual depositors to request withdrawal early to avoid the possibility of not being able to withdraw anything at all (consuming zero). Requesting withdrawal early also allows depositors to use their money for other purposes, such as buying provisions or investing in alternative assets.

In a Bank Run in the Diamond-Dybvig Model, It Is