Incentives, Communication, and Payment Instruments
FRB Richmond Working Paper No. 00-11
30 Pages Posted: 28 Nov 2012
Date Written: November 30, 2000
Alternative payment instruments are studied in an economy with private information, delayed communication, and limited commitment. Attention is restricted to checks and bank drafts, which differ in resource cost and communication characteristics. Checks are less costly but settlement delays create a limited commitment constraint. We find that drafts dominate at low wealths and checks at higher wealths. Applications to 19th century and modern payment systems are discussed.
Keywords: means of payment, incentives, communication
JEL Classification: D82, G21
Suggested Citation: Suggested Citation