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Payment networks in a search model of money

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Author Info

  • Antoine Martin

    (Federal Reserve Bank of New York)

  • Michael Orlando

    (Evolve24 LLC)

  • David Skeie

    (Federal Reserve Bank of New York)

Abstract

In a simple search model of money, we study a special kind of memory which gives rise to an arrangement resembling a payment network. Specifically, we assume that agents can pay a cost to have access to a central data base which keeps track of payments made and received. Incentives must be provided to agents to access the central data base and to produce when they have access to this arrangement. We also study policies that can loosen these incentive constraints. In particular, we show that a `no-surcharge' rule has good incentive properties. Finally, we compare our model with the model of Cavalcanti and Wallace (1999 a and b). (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.04.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 1 (January)
Pages: 104-132

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Handle: RePEc:red:issued:06-230

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Related research

Keywords: Payment networks; Money; Search;

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References

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  1. Cavalcanti, Ricardo & Erosa, Andres & Temzelides, Ted, . "Private Money and Reserve Management in a Random Matching Model," Working Papers 97-17, University of Iowa, Department of Economics, revised Sep 1997.
  2. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
  3. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  4. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  5. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  6. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
  7. Shi, Shouyong, 1996. "Credit and Money in a Search Model with Divisible Commodities," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 627-52, October.
  8. repec:cup:macdyn:v:4:y:2000:i:3:p:289-323 is not listed on IDEAS
  9. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  10. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta.
  11. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
  12. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland.
  13. Nobuhiro Kiyotaki & Randall Wright, 1989. "A contribution to the pure theory of money," Staff Report 123, Federal Reserve Bank of Minneapolis.
  14. Stuart E. Weiner & Julian Wright, 2005. "Interchange fees in various countries: developments and determinants," Payments System Research Working Paper PSR WP 05-01, Federal Reserve Bank of Kansas City.
  15. Dean Corbae & Joseph Ritter, 2004. "Decentralized credit and monetary exchange without public record keeping," Economic Theory, Springer, vol. 24(4), pages 933-951, November.
  16. Geoffrey R. Gerdes & Jack K . Walton II, 2002. "The use of checks and other noncash payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 360-374.
  17. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  18. Thorsten Koeppl & Cyril Monnet & Ted Temzelides, 2006. "A dynamic model of settlement," Working Paper Series 604, European Central Bank.
  19. Hahn, Robert W. & Layne-Farrar, Anne & Swartz, Daniel D. Garcia, 2004. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Working paper 316, Regulation2point0.
  20. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
  21. Geoffrey R. Gerdes & Jack K. Walton II & May X. Liu & Darrel W. Parke, 2005. "Trends in the use of payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Spr, pages 180-201.
  22. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  23. Camera, Gabriele, 2000. "Money, Search, And Costly Matchmaking," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 289-323, September.
  24. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
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Citations

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Cited by:
  1. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia.
  2. Charles M. Kahn & William Roberds, 2005. "Credit and identity theft," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  3. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  4. Roberds, William & Schreft, Stacey L., 2009. "Data breaches and identity theft," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 918-929, October.
  5. Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
  6. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta.

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