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A General Equilibrium Analysis of Check Float

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  • McAndrews, James
  • Roberds, William

Abstract

Households and businesses in the United States prefer to use check payment over less costly, electronic means of payment. Earlier studies have focused on check "float," that is, the time lag between receipt and clearing, as a potential explanation for the continued popularity of checks. An underlying assumption of these studies is that check float operates as a pure transfer from payee to payor. We construct a simple general equilibrium model in which payments are made by check. In general equilibrium, check float does not act as a pure transfer. If float can be priced into market transactions, then it has no effect on equilibrium allocations. If float is not priced into market transactions, then it acts as a distorting tax. Our results are consistent with the view that float is a significant factor behind the continued popularity of check payment. Our results are also consistent with recent data that indicate that the average value of float (per check) is small.
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Suggested Citation

  • McAndrews, James & Roberds, William, 1999. "A General Equilibrium Analysis of Check Float," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 353-377, October.
  • Handle: RePEc:eee:jfinin:v:8:y:1999:i:4:p:353-377
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    Cited by:

    1. Tamás Ilyés & Lóránt Varga, 2015. "A General Equilibrium Approach of Retail Payments," MNB Working Papers 2015/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Franklin Allen & James McAndrews & Philip Strahan, 2002. "E-Finance: An Introduction," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(1), pages 5-27, August.
    3. Simpson Prescott, Edward & Weinberg, John A., 2003. "Incentives, communication, and payment instruments," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 433-454, March.
    4. Tumen, Semih, 2012. "Regulation and the market for checks," Economic Modelling, Elsevier, pages 858-867.
    5. 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.
    6. Stephen F. Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta.
    7. David B. Humphrey & Robert M. Hunt, 2012. "Getting rid of paper: savings from Check 21," Working Papers 12-12, Federal Reserve Bank of Philadelphia.

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