Liquidity and ambiguity : banks or asset markets?

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URL:	https://ub-madoc.bib.uni-mannheim.de/2549
URN:	urn:nbn:de:bsz:180-madoc-25499
Document Type:	Working paper
Year of publication:	2007
The title of a journal, publication series:	Working paper series / Sonderforschungsbereich 504, Rationalitätskonzepte, Entscheidungsverhalten und Ökonomische Modellierung
Volume:	07-18
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series:	Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject:	330 Economics
Classification:	JEL: G2 G1 D8 ,
Subject headings (SWD):	Finanzintermediäre , Kapitalanlage , Entscheidung bei Unsicherheit , Liquiditätspräferenztheorie , Bankgeschäft , Kreditmarkt
Keywords (English):	Financial institutions , Liquidity , Ambiguity , Choquet Expected Utility
Abstract:	We study the impact of ambiguity on two alternative institutions of financial intermediation in an economy where consumers face uncertain liquidity needs. The ambiguity the consumers experience is modeled by the degree of confidence in their additive beliefs. We analyze the optimal liquidity allocation and two institutional settings for implementing this allocation: a secondary asset market and a bank deposit contract. For full confidence we obtain the well-known result that consumers prefer the bank deposit contract over the asset market, since the former can provide the optimal cross subsidy for consumers with high liquidity needs. With increasing ambiguity this preference will be reversed: the asset market is preferred, since it avoids inefficient liquidation if the bank reserve holdings turn out to be suboptimal.
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