A General Equilibrium Analysis of Check Float

Households and businesses in the U.S. prefer to use checks over less costly means of payment. Earlier studies have focused on check quot;floatquot; as an explanation for the continued popularity of this seemingly inefficient technology. We construct a general equilibrium model of check payment, and show that the presence of float does not necessarily lead to inefficiency. However, we also identify two potential sources of inefficiency associated with check float: (1) if float is not always priced, then it acts as distorting tax, and (2) inefficiencies can result if people engage in costly activities designed to accelerate check presentment