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A dynamic model of settlement |
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| Authors: | Thorsten Koeppl |
| Institution: | a Department of Economics, Queen's University, Kingston K7L 3N6, Canada b European Central Bank, DG Research, D-60311 Frankfurt/Main, Germany c Department of Economics, University of Pittsburgh, Pittsburgh, PA 15260, USA |
| 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 can be supported if settlement is introduced, provided that it takes place with a sufficiently high frequency. |
| Keywords: | C72 D82 E40 G20 |
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