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Disruptions in large value payment systems: An experimental approach

  • Klaus Abbink

    (School of Economics and CBESS, Universiy of East Anglia)

  • Ronald Bosman

    (De Nederlandsche Bank, Financial Stability Division)

  • Ronald Heijmans

    (De Nederlandsche Bank, Cash and Payment Systems Division)

  • Frans van Winden

    (Tinbergen Institute and University of Amsterdam, CREED, Faculty of Economics and Business)

This experimental study investigates the behaviour of banks in a large value payment system. More specifically, we look at 1) the reactions of banks to disruptions in the payment system, 2) the way in which the history of disruptions affects the behaviour of banks (path dependency) and 3) the effect of more concentration in the payment system (heterogeneous market versus a homogeneous market). The game used in this experiment is a stylized version of a model of Bech and Garrett (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient). The results show that there is significant path dependency in terms of disruption history. Also the level of disruption influences the behaviour of the participants. Once the system has moved to the inefficient equilibrium, it does not easily move back to the efficient equilibrium. Furthermore, there is a clear leadership effect in the heterogeneous market.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 10-11.

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Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:uea:wcbess:10-11
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  1. Giovanna Devetag & Andreas Ortmann, 2006. "When and Why? A Critical Survey on Coordination Failure in the Laboratory," CERGE-EI Working Papers wp302, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  2. Charles M. Kahn & James J. McAndrews & William Roberds, 1999. "Settlement risk under gross and net settlement," FRB Atlanta Working Paper 99-10, Federal Reserve Bank of Atlanta.
  3. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
  4. James J. McAndrews & Samira Rajan, 2000. "The timing and funding of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 17-32.
  5. Ana B. Ania & Carlos Alós-Ferrer & Klaus R. Schenk-Hoppé, 1998. "- An Evolutionary Model Of Bertrand Oligopoly," Working Papers. Serie AD 1998-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Ronald Heijmans, 2009. "Simulations in the Dutch interbank payment system: A sensitivity analysis," DNB Working Papers 199, Netherlands Central Bank, Research Department.
  7. John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
  8. Mehta, Judith & Starmer, Chris & Sugden, Robert, 1994. "The Nature of Salience: An Experimental Investigation of Pure Coordination Games," American Economic Review, American Economic Association, vol. 84(3), pages 658-73, June.
  9. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  10. Marc Pr�pper & Iman van Lelyveld & Ronald Heijmans, 2008. "Towards a Network Description of Interbank Payment Flows," DNB Working Papers 177, Netherlands Central Bank, Research Department.
  11. Fernando Vega Redondo, 1996. "The evolution of walrasian behavior," Working Papers. Serie AD 1996-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. repec:tpr:qjecon:v:106:y:1991:i:3:p:885-910 is not listed on IDEAS
  13. Bech, Morten L. & Garratt, Rod, 2001. "The Intraday Liquidity Management Game," University of California at Santa Barbara, Economics Working Paper Series qt0m6035wg, Department of Economics, UC Santa Barbara.
  14. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
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