WORK IN PROGRESS
'Cyber Security and Cloud Outsourcing of Payments', with Noé Ciet (Université Paris Panthéon Assas).
Abstract:
We study the incentives of competing banks to outsource their payment services to a common infrastructure, managed by a private third-party provider (TPP). The TPP provider stores depositors' information in the cloud and offers compatibility services, but is exposed to cyber risk. In the first-best benchmark, the regulator chooses to build a common payment infrastructure when the marginal social benefits are higher than the marginal social costs, and chooses the welfare-maximizing levels of security investment for all players. If the market is unregulated, without cyber risk, banks outsource excessively to the TPP compared to the first-best because network effects soften competition for deposits. However, we show that cyber risk and the costs of security may reduce banks' incentives to join the third-party infrastructure, which may result in an inefficiently low level of interoperability of their payment systems. We examine how the liability regime for cyber incidents may improve the players' investment in security. We show that increasing the TPP's liability towards depositors has a higher impact on payment system security than increasing its liability towards banks. We discuss how several regulatory options impact the security and compatibility of banks' payment systems: supervision of outsourcing agreements, shared responsibility model, public provision of payment services.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3402994
'Competing Digital Monies', with Jon Frost (BIS), Hyun Song Shin (BIS), and Jean-Charles Rochet (TSE).
We compare three competing digital payment instruments: bank deposits, digital platform tokens and central bank digital currencies (CBDCs). A simple theoretical model integrates the theory of two-sided markets and payment economics. We use the model to assess the impact of a public option such as a fast payment system that makes private payment instruments interoperable, or a CBDC that provides general access to public digital money. We show that both options are essentially equivalent for the industrial organisation of the payment system. We find that, even if they may lead to some degree of disintermediation, both options can contribute to increasing financial inclusion and improving social welfare.
'Regulation of Selection Markets', with Marie Obidzinski (Université Paris 2).
In this paper, we analyze how a monopolistic firm prefers to select its consumers when it uses an imperfect selection technology. The firm incurs some costs of separating the group of compliant consumers from the non-compliant ones, and a mis-classification cost when it erroneously accept to sell to a non-compliant consumer. The firm may collect some information to improve the precision of the signal received on its consumers and adjust its classification method. We analyze why the monopoly's choice differs from the first-best, and the role of several regulatory instruments: standards on the amount of information collected, sanctions imposed on the firm, fines imposed on non-compliant users.
UNPUBLISHED RESEARCH PAPER:
'One-sided Access in Two-Sided Markets'.
One-sided-access-in-two-sided-Markets-Marianne-Verdier-FIDES.pdf