Mechanism design and Payments
We use mechanism design in order to study efficient arrangements when the ability of agents to perform certain welfare-improving transactions is subject to random and unobservable shocks. We study implementation via a payment system that involves assigning balances to participants and optimally adjusting these balances given their histories of transactions. Our analysis has several implications for the design of payment systems. Efficiency requires that, in order to overcome informational frictions, transactions that are subject to high monitoring costs need to be subsidized. Optimal settlement frequency should balance the fixed cost of settlement against the costs arising from providing intertemporal incentives. Settlement costs must be borne by those participants for whom certain participation constraints are slack.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Hiroshi Fujiki & Edward J. Green & Akira Yamazaki, 1999. "Sharing the risk of settlement failure," Working Papers 594, Federal Reserve Bank of Minneapolis.
- Charles M. Kahn & William Roberds, .
"Payment System Settlement and Bank Incentives,"
Center for Financial Institutions Working Papers
97-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Ricardo de O. Cavalcanti & Andrés Erosa & Ted Temzelides, 2005.
"Liquidity, Money Creation And Destruction, And The Returns To Banking,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 675-706, 05.
- de O. Cavalcanti, Ricardo & Erosa, Andrés & Temzelides, Ted, 2004. "Liquidity, money creation and destruction, and the returns to banking," Working Paper Series 0394, European Central Bank.
- Koeppl, Thorsten Volker & Monnet, Cyril & Temzelides, Ted, 2006.
"A dynamic model of settlement,"
Working Paper Series
0604, European Central Bank.
- David C. Mills, 2005.
"Alternative central bank credit policies for liquidity provision in a model of payments,"
Finance and Economics Discussion Series
2005-55, Board of Governors of the Federal Reserve System (U.S.).
- Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
- David C. Mills, 2004. "Alternative Central Bank Credit Policies for Liquidity Provision in a Model of Payments," Econometric Society 2004 North American Summer Meetings 155, Econometric Society.
- Charles M. Kahn & William Roberds, 1999.
"Real-time gross settlement and the costs of immediacy,"
FRB Atlanta Working Paper
98-21, Federal Reserve Bank of Atlanta.
- Kahn, Charles M. & Roberds, William, 2001. "Real-time gross settlement and the costs of immediacy," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 299-319, April.
- Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July.
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