Skip to main content
eScholarship
Open Access Publications from the University of California

UC Irvine

UC Irvine Previously Published Works bannerUC Irvine

Financial Contagion in the Laboratory: Does Network Structure Matter?

Abstract

We explore the role of interbank network structure and premature liquidation costs for the likelihood of financial contagions in a laboratory experiment. We consider complete versus incomplete networks of banks linked together by interbank deposits, and we further vary premature liquidation costs. Subjects play the role of depositors deciding whether or not to withdraw funds from their interconnected bank. We find that when liquidation costs are high, a complete network structure is significantly less vulnerable to financial contagions than an incomplete network structure. However, when liquidation costs are low, network structure is less important for the frequency of financial contagions.

Many UC-authored scholarly publications are freely available on this site because of the UC's open access policies. Let us know how this access is important for you.

Main Content
For improved accessibility of PDF content, download the file to your device.
Current View