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Incentives, communication, and payment instruments

  • Edward Simpson Prescott
  • John A. Weinberg

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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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 00-11.

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Date of creation: 2000
Handle: RePEc:fip:fedrwp:00-11
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  1. Charles M. Kahn & James J. McAndrews & William Roberds, 1999. "Settlement risk under gross and net settlement," Staff Reports 86, Federal Reserve Bank of New York.
  2. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  3. McAndrews, James & Roberds, William, 1999. "A General Equilibrium Analysis of Check Float," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 353-377, October.
  4. Jeffrey M. Lacker, 1997. "Clearing, settlement, and monetary policy," Working Paper 97-01, Federal Reserve Bank of Richmond.
  5. 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.
  6. James J. McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," FRB Atlanta Working Paper 99-11, Federal Reserve Bank of Atlanta.
  7. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
  8. 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.
  9. Williamson, S.D., 1998. "Private Money," Working Papers 98-09, University of Iowa, Department of Economics.
  10. Jeffrey M. Lacker, 1997. "The check float puzzle," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-26.
  11. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
  12. Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings 537, Federal Reserve Bank of Chicago.
  13. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  14. Charles M. Kahn & Dilip Mookherjee, 1996. "Competition and Incentives with Non-Exclusive Contracts," Papers 0075, Boston University - Industry Studies Programme.
  15. 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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