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A dynamic model of settlement

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  • Koeppl, Thorsten
  • Monnet, Cyril
  • Temzelides, Ted

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 can be supported if settlement is introduced, provided that it takes place with a sufficiently high frequency.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 142 (2008)
Issue (Month): 1 (September)
Pages: 233-246

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Handle: RePEc:eee:jetheo:v:142:y:2008:i:1:p:233-246

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Kahn, Charles M. & Roberds, William, 2007. "Transferability, finality, and debt settlement," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 955-978, May.
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