In a Diamond and Dybvig (1983) environment, Green and Lin (2003) take a mechanism design approach and show that a bank run equilibrium cannot exist. Peck and Shell (2003) generalize their economic environment and show that it can. The bank run, however, does not emerge because of modi…cations to the economic environment but rather because the mechanism that implements allocations is not an optimal one. When an optimal mechanism is used, the bank run equilibrium disappears.

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