Payment networks in a search model of money
Abstract: In a simple search model of money, we study a special kind of memory that gives rise to an arrangement resembling a payment network. Specifically, we assume that agents can pay a cost to access a central database that tracks payments made and received. Incentives must be provided to agents to access the central database and to produce when they participate in this arrangement. We also study policies that can loosen these incentive constraints. In particular, we show that a "no-surcharge" rule has good incentive properties. Finally, we compare our model with that of Cavalcanti and Wallace.
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Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2006-10-01
Note: For a published version of this report, see Antoine Martin, Michael Orlando, and David Skeie, "Payment Networks in a Search Model of Money," Review of Economic Dynamics 11, no. 1 (January 2008): 104-32.