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 (heteroge-neous 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.
|Number of pages||33|
|Journal||International Journal of Central Banking|
|Publication status||Published - 1 Dec 2017|