A dynamic model of the payment system

Thorsten Koeppl, Cyril Monnet and Ted Loch Temzelides

No 07-22, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors study the design of efficient intertemporal payment arrangements when the ability of agents to perform certain welfare-improving transactions is subject to random and unobservable shocks. Efficiency is achieved via a payment system that assigns balances to participants, adjusts them based on the histories of transactions, and periodically resets them through settlement. Their analysis addresses two key issues in the design of actual payment systems. First, efficient use of information requires that agents participating in transactions that do not involve monitoring frictions subsidize those that are subject to such frictions. Second, the payment system should explore the trade-off between higher liquidity costs from settlement and the need to provide intertemporal incentives. In order to counter a higher exposure to default, an increase in settlement costs implies that the volume of transactions must decrease, but also that the frequency of settlement must increase. ; Also issued as Payment Cards Center Discussion Paper No. 07-14

Keywords: Payment; systems (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2007/wp07-22.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:07-22

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().