Transferability, Finality, and Debt Settlement

FRB Atlanta Working Paper No. 2001-18b

61 Pages Posted: 4 Nov 2001

See all articles by Charles M. Kahn

Charles M. Kahn

University of Illinois, Urbana-Champaign; Bank of Canada; Federal Reserve Bank of Saint Louis

William Roberds

Federal Reserve Bank of Atlanta

Date Written: October 2004

Abstract

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.

Keywords: settlement, finality, negotiability

JEL Classification: E400, G200, K200

Suggested Citation

Kahn, Charles M. and Roberds, William, Transferability, Finality, and Debt Settlement (October 2004). FRB Atlanta Working Paper No. 2001-18b, Available at SSRN: https://ssrn.com/abstract=288549 or http://dx.doi.org/10.2139/ssrn.288549

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
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HOME PAGE: http://kahnfrance.com/cmk/

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