Who should bear the resource cost of electronic transaction?

Young Sik Kim, Manjong Lee

Research output: Contribution to journalArticle

Abstract

Using a search theoretic model of money, we examine an optimal allocation of the resource cost of electronic transaction. A transaction using cash incurs a buyer its carrying cost, while an electronic transaction incurs data-processing cost to the payment platform which then raises the resource cost from buyers or sellers using the electronic payment system. An equilibrium allocation of the resource cost implies the seller-take-all-burden scheme by which the payment platform can maximize the volume of electronic transactions by raising the resource cost only from sellers. However, the socially optimal allocation of the resource cost implies the buyer-take-all-burden scheme by which the resource cost should be raised only from buyers in order to maximize welfare.

Original languageEnglish
Pages (from-to)270-280
Number of pages11
JournalJournal of Macroeconomics
Volume47
DOIs
Publication statusPublished - 2016 Mar 1

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Keywords

  • Cash
  • Electronic payment
  • Resource cost

ASJC Scopus subject areas

  • Economics and Econometrics

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