A dynamic model of settlement

Thorsten V. Koeppl (), Cyril Monnet () and Ted Temzelides ()

No 604, Working Paper Series from European Central Bank

Abstract: We investigate the role of settlement in a dynamic model of a payment system where the ability of participants to perform certain welfare-improving transactions is subject to random and unobservable shocks. In the absence of settlement, the full information first-best allocation cannot be supported due to incentive constraints. In contrast, this allocation is supportable if settlement is introduced. This, however, requires that settlement takes place with a sufficiently high frequency. JEL Classification: E4; E5.

Keywords: Payments; settlement; intertemporal incentives. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk and nep-mac
Date: 2006-04
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Related works:
Working Paper: A Dynamic Model of Settlement (2006)
Journal Article: A dynamic model of settlement (2008)
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