The demand for programmable payments

Résumé

We study the desirability of programmable payments where transfers are automatically executed conditional upon preset objective criteria. Our results show that optimal payment arrangements for long-term economic relationships consist predominantly of simple direct payments. Direct payments increase the potential surplus by avoiding the liquidity cost of lockingup funds from the moment where the payer commits the funds in a programmable payment until the moment where the conditions are satisfied to release those funds to the payee. Programmable payments will be desirable for short-term economic relationships. Our results also identify a limit to the demand for payments as their cost decrease.

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