Investor Presentaiton

If the second depositor learns that the payoff of the asset is low he does not deposit which means the first deposit cannot withdraw. Anticipating this, the first depositor either demands for a higher interest rate or does not deposit. In order to avoid information production by late depositors the loan must be information insensitive. We can also interpret л as a measure of “suspicion". If лL is larger than a threshold value y then depositors have more reason to become concerned about how safe their deposits would be. Remark: See Dang, Gorton, Holmstrom and Ordonez (2014) for full model.

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