A dynamic model of settlement

Abstract

We investigate the role of settlement in a dynamic model of a payment system where the ability of participants to perform certain welfare-improving transactions is subject to random and unobservable shocks. In the absence of settlement, the full information first-best allocation cannot be supported due to incentive constraints. In contrast, this allocation… (More)
DOI: 10.1016/j.jet.2006.10.005

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