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A dynamic model of settlement

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

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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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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