Abstract

http://ssrn.com/abstract=1506523
 
 

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Efficient Payments and Price Distribution


Yassine Bouhdaoui


Vrije Universiteit Brussel

David Bounie


Telecom ParisTech

Abel Francois


Strasbourg University, LARGE; EM Strasbourg Business School; Telecom ParisTech

September 4, 2009


Abstract:     
The studies dealing with the efficiency of monetary denomination systems are usually based on a restrictive assumption: prices paid cash are assumed to be evenly distributed in the economy. Using an empirical (observed) distribution of prices in the French economy, this paper measures the losses in efficiency when using a uniform distribution of prices. We show that i. the average number of tokens used in transactions when observed prices are concerned is around two times less than that obtained when prices are evenly distributed; ii. considering a uniform distribution of prices leads to overestimate the average frequency of use of larger denominations and to underestimate the average frequency of use of lower denominations, at least the one euro denomination; iii. the probability of existence of a price, the number of occurences of a price, the proportion of lower prices and, finally, the proportion of round prices are central to explain the observed payment efficiency. At the end, the simulations provide useful clues to better understanding how and why the price distribution affects payment efficiency.

Number of Pages in PDF File: 12

Keywords: currency denomination, monetary denomination efficiency

JEL Classification: E4, E47

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Date posted: November 15, 2009 ; Last revised: June 25, 2010

Suggested Citation

Bouhdaoui, Yassine and Bounie, David and Francois, Abel, Efficient Payments and Price Distribution (September 4, 2009). Available at SSRN: http://ssrn.com/abstract=1506523 or http://dx.doi.org/10.2139/ssrn.1506523

Contact Information

Yassine Bouhdaoui
Vrije Universiteit Brussel ( email )
Boulevard de la Plaine 2
Ixelles, 1050
Belgium
David Bounie (Contact Author)
Telecom ParisTech ( email )
46 rue Barrault
F-75634 Paris, Cedex 13
France
Abel Francois
Strasbourg University, LARGE ( email )
47 avenue de la foret Noire
Strasbourg, 67000
France
HOME PAGE: http://abelfrancois.wordpress.com/information/
EM Strasbourg Business School ( email )
PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France
HOME PAGE: http://abelfrancois.wordpress.com/information/
Telecom ParisTech
46, rue Barrault
Paris Cedex 13, F-75634
France
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