Working Paper: NBER ID: w31561
Authors: Markus K. Brunnermeier; Jonathan Payne
Abstract: This paper studies strategic decision making by a private currency ledger operator, which faces competition from public money and/or other ledgers. A monopoly ledger operator can incentivize contract enforcement across the financial sector by threatening exclusion, but it can also impose markups through its pricing power. Currency competition limits rent extraction, but also makes coordinated contract enforcement more fragile. The emergent market structure bundles the provision of ledger and platform trading technologies. Regulation to ensure platform cooperation on contract enforcement and competition on markup setting is effective so long as agents can easily switch between platforms.
Keywords: No keywords provided
JEL Codes: E4; E42; E5; E50; E59; F39; G21; G23; L10; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monopoly ledger operator's actions (L12) | contract compliance among financial intermediaries (G29) |
| exclusion threats (C24) | increased contract enforcement among financial intermediaries (G21) |
| ledger operator's pricing power (D49) | overall economic output (E23) |
| competition between private tokens and public money (E42) | limit rent extraction (R21) |
| competition between private tokens and public money (E42) | destabilize coordinated contract enforcement (D74) |
| elasticity of agent substitution (D10) | ledger operator's ability to maintain profitability (G32) |
| elasticity of agent substitution (D10) | incentivizing the use of payment technology (O31) |