Coordination on Use of Non-deferred Electronic Payment Instruments

Abstract

In the use of electronic payment technology, there is strategic complementarity and hence room for self-fulfilling multiple equilibria. But existing relevant literature is silent about how agents' expectations become coordinated. This paper resolves the coordination problem in the use of a non-deferred electronic means of payment, which can be represented by a debit card. We focus on that because it is almost a perfect substitute for cash. The presence of exogenous shocks that have a fundamental impact on the cost of the technology makes agents coordinate their expectations in a particular way. We also show that a high inflation and a distortionary financing scheme for debit-card transactions cost disturb coordination in the use of debit cards.