Herd Behavior in Bank Runs with Partial Suspension of Convertibility

I study a two-depositor, two-stage, sequential-move bank run model in an economy with ag-gregate consumption uncertainty and production uncertainty. I consider banking contracts that are contingent on the publicly observed withdrawal history. Depositors have private information about their consumption types and they receive noisy private signals about the quality of the banks portfolio. In some economies, the optimal banking contract permits bank runs that bear herd e¤ect. Some of these runs are e ¢ cient in that the banks portfolio is liquidated before it worsens. Others are not e ¢ cient; there are cases in which the herd is misled