Financial Innovations in a world with limited commitment: implications for inequality and welfare

In this paper, we develop a model economy to study how financial innovations affect financial access and inequality. Financial innovations alter distribution of costs. In this way, the measure of buyers is endogenous regarding the payment method. In studying financial innovations in an economy with limited commitment, it is possible to bridge two existing literatures. When comparing stationary equilibria, we find that the results depend on the scarcity of collateral. Moreover, the expected welfare and inequality are affected by consumers access to the form of payment systems.