Consider the Diamond - Dybvig banking model. Assume, as in the notes, that u ( c )
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Question:
Consider the DiamondDybvig banking model. Assume, as in the notes, that ucc a a and that a Assume that r and t using the Excel spreadsheet, find the optimal banking contract. Find c and c Compare these to the case above when a Economically, how do these banking contracts differ? Why do you think this is the case hint: think about riskaversion Explain your answers carefully.
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