Payments Systems Design in Deterministic and Private Information Environments

The ...rst setup we study is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare. A payments system with period-by-period settlement in outside money improves on decentralized exchange. An e¢cient allocation is supported by a payments system where settlement is not imposed. In the second model, there is random matching and unobserved productivity shocks and preference shocks. We explore how risk should be shared optimally in this economy and interpret the results in terms of how actual payments systems should operate. Journal of Economic Literature classi...cation numbers E4, E5.