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Are checks overused?

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Abstract

This study overturns the conclusion of a 1990 study by David Humphrey and Allen Berger, which found that check float is responsible for the popularity of checks despite their high resource cost compared to electronic payment instruments. The new study examines recent data on the costs of checks and automated clearinghouse (ACH) payments. It finds that the value of check float has decreased significantly since the 1990 study and is no longer large enough to make checks more attractive than ACH payments. The study also questions whether the idea that float could be responsible for the persistent use of checks is reasonable given standard assumptions about the behavior of economic agents. The study ends by speculating on why checks are used more than less-costly alternatives and by encouraging policymakers to wait for researchers to adequately answer that question before intervening in the market for payment instruments.

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  • Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 20(Fall), pages 2-12.
    • Handle: RePEc:fip:fedmqr:y:1996:i:fall:p:2-12:n:v.20no.4
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    1. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    2. Paul W. Bauer & Diana Hancock, 1995. "Scale economies and technological change in Federal Reserve ACH payment processing," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 14-29.
    3. William Dudley, 1984. "A comparison of direct deposit and check payment costs," Staff Studies 141, Board of Governors of the Federal Reserve System (U.S.).
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