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Incentives, communication, and payment instruments

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  • Simpson Prescott, Edward
  • Weinberg, John A.

Abstract

Alternative payment instruments are studied in an economy with private information, delayed communication, and limited commitment. Attention is restricted to checks and bank drafts, which differ in resource cost and communication characteristics. Checks are less costly but settlement delays create a limited commitment constraint. We find that drafts dominate at low wealths and checks at higher wealths. Applications to 19th century and modern payment systems are discussed.
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  • Simpson Prescott, Edward & Weinberg, John A., 2003. "Incentives, communication, and payment instruments," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 433-454, March.
  • Handle: RePEc:eee:moneco:v:50:y:2003:i:2:p:433-454
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    References listed on IDEAS

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    1. Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings 537, Federal Reserve Bank of Chicago.
    2. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-1344, December.
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    9. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
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    14. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, pages 14-23.
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    17. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. " Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
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    19. Edward Simpson Prescott & Daniel D. Tatar, 1999. "Means of payment, the unbanked, and EFT '99," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
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    Cited by:

    1. John A. Weinberg, 2002. "Imperfect competition and the pricing of interbank payment services," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 51-66.
    2. Ricardo de O. Cavalcanti, 2010. "Inside-money theory after Diamond and Dybvig," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 59-82.
    3. Lacker, Jeffrey M. & Weinberg, John A., 2003. "Payment economics: studying the mechanics of exchange," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 381-387, March.

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