Mechanism Design and Payments
AbstractWe use mechanism design in order to study efficient arrangements when the ability of agents to perform certain welfare-improving transactions is subject to random and unobservable shocks. We study implementation via a payment system that involves assigning balances to participants and optimally adjusting these balances given their histories of transactions. Our analysis has several implications for the design of payment systems. Efficiency requires that, in order to overcome informational frictions, transactions that are subject to high monitoring costs need to be subsidized. Optimal settlement frequency should balance the fixed cost of settlement against the costs arising from providing intertemporal incentives. Settlement costs must be borne by those participants for whom certain participation constraints are slack.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 11.
Date of creation: 2005
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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mechanism design banking dynamics;
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- NEP-ALL-2005-12-01 (All new papers)
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- Koeppl, Thorsten Volker & Monnet, Cyril & Temzelides, Ted, 2006.
"A dynamic model of settlement,"
Working Paper Series
0604, European Central Bank.
- David C. Mills, Jr., 2005.
"Alternative central bank credit policies for liquidity provision in a model of payments,"
Finance and Economics Discussion Series
2005-55, Board of Governors of the Federal Reserve System (U.S.).
- Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
- David C. Mills, 2004. "Alternative Central Bank Credit Policies for Liquidity Provision in a Model of Payments," Econometric Society 2004 North American Summer Meetings 155, Econometric Society.
- de O. Cavalcanti, Ricardo & Erosa, Andrés & Temzelides, Ted, 2004.
"Liquidity, money creation and destruction, and the returns to banking,"
Working Paper Series
0394, European Central Bank.
- Ricardo de O. Cavalcanti & Andrés Erosa & Ted Temzelides, 2005. "Liquidity, Money Creation And Destruction, And The Returns To Banking," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 675-706, 05.
- Hiroshi Fujiki & Edward J. Green & Akira Yamazaki, 1999. "Sharing the risk of settlement failure," Working Papers 594, Federal Reserve Bank of Minneapolis.
- Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July.
- Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 111-142.
- Benjamin Lester, 2006. "A Model of Interbank Settlement," 2006 Meeting Papers 282, Society for Economic Dynamics.
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