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Incentive Efficient Risk Sharing in Settlement Mechanism

  • Edward J. Green
  • Yamazaki, Akira

The purpose of this paper is to address a question concerning risk management in continuing, multi-party, contractual, clearing and settlement arrangements through which large-value payments are typically made. We are particularly interested in the issues of incentive compatibility when athird party possesses a private information concerning the riskiness of transfers being made. If a third party possesses private information that would be of value in determining how best to settle a payment, how does the exposure of that party to the settlement risk affect the quality of information that the party chooses to provide? In this paper, we address the question by analyzing a specific class of parametric environments of a schematic, formal, model of a settlement arrangement or a payment netwrok.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16938/1/070econDP01-03.pdf
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Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2001-03.

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Length: 1, 24 p.
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:hit:econdp:2001-03
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Web page: http://www.econ.hit-u.ac.jp/

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  1. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
  2. Neil Wallace, 1996. "Narrow banking meets the Diamond-Dybvig model," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-13.
  3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
  4. Michael J. Fleming & Kenneth D. Garbade, 2005. "Explaining settlement fails," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Sep).
  5. Hiroshi Fujiki & Edward J. Green & Akira Yamazaki, 1999. "Sharing the risk of settlement failure," Working Papers 594, Federal Reserve Bank of Minneapolis.
  6. FORGES, Françoise & MINELLI, Enrico & VOHRA, Rajiv, 2001. "Incentives and the core of an exchange economy: a survey," CORE Discussion Papers 2001043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44.
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