We study whether priors that admit full surplus extraction (FSE) are generic, an issue that becomes a gauge to evaluate the validity of the current mechanism design paradigm. We consider the space of priors on the universal type space, and thereby relax the assumption of a fixed finite number of types made by Crémer and McLean (1988). We show that FSE priors are topologically generic, contrary to the result of Heifetz and Neeman (2006) that FSE is generically impossible, both geometrically and measure-theoretically. Instead of using the BDP approach or convex combinations of priors adopted in Heifetz and Neeman (2006), we prove our genericity results by showing a robustness property of Crémer–McLean mechanisms.

We study whether and how banks’ social performance affects depositors, who hold demandable debt with pervasive government protection. Exploiting the regulatory releases of bank performance ratings for community development and a difference-in-differences design, we find a decline in deposit growth after the release of negative bank social performance. In addition, deposits that are impacted by the negative events flow to nearby banks with high social performance. Further analyses find that the results hold similarly among insured and uninsured deposits and are primarily driven by banks with a large proportion of deposits from high-trust and pro-social counties, and in poor information environments. Overall, we contribute to the literature by documenting the importance of social performance to nonshareholder stakeholders and providing implications for bank stability.