E-money, risk-sharing, and welfare

Francesco Carli and Burak Uras

European Economic Review, 2024, vol. 169, issue C

Abstract: We develop a micro-founded monetary model to inquire the role of a privately provided e-money instrument for household consumption smoothing and welfare. Different from fiat money, e-money users pay electronic transaction fees, but in turn e-money reduces their spatial separation frictions and enables risk-sharing through remittance transfers. We characterize the profit maximizing e-money transaction fees charged by a monopolist technology provider and the optimality of price regulation. Calibrating the model for the context of Kenya’s e-money product M-Pesa shows that the introduction of M-Pesa through a monopolist increases aggregate welfare by 1.0%, while regulating e-money prices and fully eliminating the monopoly power of the technology provider raises the aggregate welfare only by 0.1% beyond what is achieved through the monopolist.

Keywords: FinTech; M-Pesa; Remittances; Risk-sharing; Welfare; Policy (search for similar items in EconPapers)
JEL-codes: E41 E44 G23 O11 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:169:y:2024:i:c:s0014292124001612

DOI: 10.1016/j.euroecorev.2024.104832

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