Transferability, Finality, and Debt Settlement

The process of payment is fundamental to exchange in a decentralized economy. In production economies, payments often take the form of transfers of inside money, i.e., specialized forms of debt. Associated with each type of inside money is a set of rules that governs both the legitimacy of such transfers as means of extinguishing other debts and the allocation of the ensuing risks.In this paper the authors develop a model of debt as inside money. In a simple mechanism design framework, they show the advantages of transferable debt over simple chains of credit