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December 2017 issue
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D’Agostino, Modugno, Osbat
Sveen, Weinke
Abbink, Bosman, Heijmans, van Winden
Lærkholm Jensen, Lando, Medhat
Behn, Detken, Peltonen, Schudel
Zhang
Meinusch, Tillmann
Philippopoulos, Varthalitis, Vassilatos
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Disruptions in Large-Value Payment Systems: An Experimental Approach

by Klaus Abbinka, Ronald Bosmanb, Ronald Heijmansc and Frans van Windend

Abstract

This experimental study investigates the individual behavior of banks in a large-value payment system. More specifically, we look at (i) the reactions of banks to disruptions in the payment system, (ii) the way in which the history of disruptions affects the behavior of banks (path dependency), and (iii) the effect of more concentration in the payment system (heterogeneous market versus a homogeneous market). The game used in this experiment is a stylized version of a model of Bech and Garratt (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient). The results show that there is significant path dependency in terms of disruption history. Also, the chance of disruption influences the behavior of the participants. Once the system is moving towards the inefficient equilibrium, it does not easily move back to the efficient one. Furthermore, there is a clear leadership effect in the heterogeneous market.

JEL Codes: C92, D70, D78, E58.

 
Full article (PDF, 33 pages, 724 kb)


a Monash University
b VU University
c De Nederlandsche Bank
d CREED, University of Amsterdam