Free Banking and Information Asymmetry
反驳了自由银行会因信息外部性而崩溃的传统观点，通过分离均衡模型证明高质量银行会以低存款利率和低风险贷款比例来传递信号，并用1964-65年香港银行数据验证了该假说。
A traditional argument against free banking is that it will collapse because of information externalities: it is impossible for depositors to tell whether a high deposit rate offered by a bank is due to its high efficiency or risky lending strategy. This paper shows that in a separating equilibrium a higher-quality bank offers a lower deposit rate and holds a smaller proportion of risky loans than a lower-quality bank to signal its underlying quality. Hence, free banking is not inherently unstable. The empirical results for the Hong Kong banking system during 1964-65 are consistent with the hypothesis of a separating equilibrium.