Transferability, Finality, and Debt Settlement
Charles M. Kahn
University of Illinois, Urbana-Champaign
Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper No. 2001-18b
The process of payment is fundamental to exchange in a decentralized economy. In production economies, payments often take the form of transfers of inside money, i.e., specialized forms of debt. Associated with each type of inside money is a set of rules that governs both the legitimacy of such transfers as means of extinguishing other debts and the allocation of the ensuing risks.
In this paper the authors develop a model of debt as inside money. In a simple mechanism design framework, they show the advantages of transferable debt over simple chains of credit.
Number of Pages in PDF File: 61
Keywords: settlement, finality, negotiability
JEL Classification: E400, G200, K200working papers series
Date posted: November 4, 2001
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