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Moral hazard in a voluntary deposit insurance system: Revisited

Camacho-Gutiérrez, Pablo and González-Cantú, Vanessa M. (2007): Moral hazard in a voluntary deposit insurance system: Revisited.

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Abstract

This paper extends Wheelock and Kumbhakar’s (1995) test for moral hazard in the Kansas deposit insurance system (1910-1920). This paper tests and finds evidence of omitted bank-specific effects. Estimates in Wheelock and Kumbhakar (1995), as a result, are biased. This paper introduces unobserved individual heterogeneity to the test for moral hazard, corrects their estimates, and finds more evidence of moral hazard in the Kansas deposit insurance system.

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