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E-money, risk-sharing, and welfare

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  • Carli, Francesco
  • Uras, Burak R.

Abstract

We develop a micro-founded monetary model to inquire the role of a privately provided e-money instrument for household consumption smoothing and welfare. Different from fiat money, e-money users pay electronic transaction fees, but in turn e-money reduces their spatial separation frictions and enables risk-sharing through remittance transfers. We characterize the profit maximizing e-money transaction fees charged by a monopolist technology provider and the optimality of price regulation. Calibrating the model for the context of Kenya’s e-money product M-Pesa shows that the introduction of M-Pesa through a monopolist increases aggregate welfare by 1.0%, while regulating e-money prices and fully eliminating the monopoly power of the technology provider raises the aggregate welfare only by 0.1% beyond what is achieved through the monopolist.

Suggested Citation

  • Carli, Francesco & Uras, Burak R., 2024. "E-money, risk-sharing, and welfare," European Economic Review, Elsevier, vol. 169(C).
    • Handle: RePEc:eee:eecrev:v:169:y:2024:i:c:s0014292124001612
    DOI: 10.1016/j.euroecorev.2024.104832
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    More about this item

    Keywords

    FinTech; M-Pesa; Remittances; Risk-sharing; Welfare; Policy;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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