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Transferability, Finality, and Debt Settlement (2002)
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BibTeX
@MISC{Kahn02transferability,finality,,
author = {Charles M. Kahn and William Roberds and Charles M. Kahn},
title = {Transferability, Finality, and Debt Settlement},
year = {2002}
}
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Abstract
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. They focus on an historically important form of payment: “negotiable instruments ” such as the bill of exchange. In a simple mechanism design framework the authors show the advantages of transferable debt over simple chains of credit. The model is then extended to encompass other aspects of negotiability, including “endorsement ” and the rights of a “holder in due course.” JEL classification: E400, G200, K200
