The transactions cost for alternative exchange mechanisms can be characterized by the computational complexity of the excha nge process. The computational complexity for any exchange mechanism is at least nH, where n is the number of goods and H is the number of households. Imposing the conditions of conservation, nonnegativity, and quid pro quo results in a command exchange mechanism whose comput ational complexity is nH. Multiparty barter exchange, formalized usin g graph theory, has computational complexity equal to the minimum of (nH2, n2H). Introducing money reduces the computational complexity to nH. A problem with decentralized information is demonstrated. Copyright 1987 by The Review of Economic Studies Limited.
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