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Regulation and the Market for Checks (Duzenlemeler ve Cek Piyasasi)

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  • Semih Tumen

Abstract

This paper analyzes the market for checks using the monopoly problem as an approximation. The need for such an analysis arises due to the following policy proposal : the Turkish government considers increasing the lump-sum amount that drawee banks are legally responsible to pay per bad check. We show that banks will tend to restrict the quantity of checks as a response to such a policy action. We report that a percentage increase in banks' obligation per bad check could lead up to a 1.7% decline in the total supply of checks on the margin. We establish that the extent of the monopoly distortion depends on three main factors : (i) the elasticity of demand for checks, (ii) how fast the fraction of bad checks increase with the total supply of checks, and (iii) the degree of preference heterogeneity.

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File URL: http://www.tcmb.gov.tr/research/teblig/abstract/wp1006_tr.php
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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1006.

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Date of creation: 2010
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Handle: RePEc:tcb:wpaper:1006

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Keywords: Checks; regulation; monopoly power; preference heterogeneity.;

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References

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  1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  2. 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.
  3. 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.
  4. Sujit Chakravorti & Timothy McHugh, 2002. "Why do we use so many checks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-59.
  5. Ricardo Lagos, 2006. "Inside and outside money," Staff Report 374, Federal Reserve Bank of Minneapolis.
  6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  7. James McAndrews & William Roberds, 1999. "A general equilibrium analysis of check float," Staff Reports 84, Federal Reserve Bank of New York.
  8. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
  9. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August.
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Cited by:
  1. Semih Tumen, 2012. "Regulating Check Use in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 12(1), pages 1-12.

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