Regulation and the Market for Checks (Duzenlemeler ve Cek Piyasasi)
This paper analyzes the market for checks using the monopoly problem as an approximation. The need for such an analysis arises due to the following policy proposal : the Turkish government considers increasing the lump-sum amount that drawee banks are legally responsible to pay per bad check. We show that banks will tend to restrict the quantity of checks as a response to such a policy action. We report that a percentage increase in banks' obligation per bad check could lead up to a 1.7% decline in the total supply of checks on the margin. We establish that the extent of the monopoly distortion depends on three main factors : (i) the elasticity of demand for checks, (ii) how fast the fraction of bad checks increase with the total supply of checks, and (iii) the degree of preference heterogeneity.
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