Here’s something I wrote, up for comments. Here’s the abstract:

A 2000 paper by Philippe Aghion, Patrick Bolton, and Mathias Dewatripont off ers a model where what they describe as a free banking system is vulnerable to contagious bank runs through clearinghouse loans. The paper ignores key contributions to both free banking and financial history literature, such that the paper is of little relevance to the understanding of the stability of both free banking systems and clearinghouse arrangements. Our criticism concentrates on the institutions of banking absent or misrepresented. It is argued that it is not clear whether the paper even features banks.

Thirteen years is a very long delay for a comment, but I was not able to find anything addressing this paper, and since it is still cited in almost every literature review on systemic risk, I thought it deserved a comment. Suffice to say, I don’t think think free banking can be dismissed in 6 pages, without giving a proper definition and citing any work on the subject matter.

My usual collaborators in our department seem to be abroad or on vacation this week, so please think of this as a crowdsourced seminar and please do leave a comment.

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