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Author Info
Aleksander Berentsen
Guillaume Rocheteau

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Abstract

This paper investigates the role of money in markets in which producers haveprivate information about the quality of the goods they supply. When the fractionof high-quality producers in the economy is given, money promotes the productionof high-quality goods, which improves the quality mix and welfare unambiguously.When this fraction is endogenous, however, we find that money can decreasewelfare relative to the barter equilibrium. The origin of this inefficiency is thatmoney provides consumption insurance to low-quality producers, whichcan result in a higher fraction of low-quality producers in the monetaryequilibrium. Finally, we find that most often agents acquire more costlyinformation in the monetary equilibrium than in the barter equilibrium.Consequently, money is welfare-enhancing because it promotes usefulproduction and exchange, but not because it saves information costs. Copyright The Review of Economic Studies Limited, 2004.

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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 71 (2004)
Issue (Month): 4 (October)
Pages: 915-944
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Handle: RePEc:bla:restud:v:71:y:2004:i:4:p:915-944

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Leonard J. Mirman & Klaus Reiner Schenk-HoppÈ, 2003. "Financial Markets and Stochastic Growth," Review of International Economics, Blackwell Publishing, vol. 11(2), pages 219-236, 05. [Downloadable!] (restricted)
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  5. Falk, Armin & Fehr, Ernst & Fischbacher, Urs, 2008. "Testing theories of fairness--Intentions matter," Games and Economic Behavior, Elsevier, vol. 62(1), pages 287-303, January. [Downloadable!] (restricted)
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  6. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
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  7. Bruno Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  20. Alberto Trejos, 1997. "Incentives to produce quality and the liquidity of money (*)," Economic Theory, Springer, vol. 9(2), pages 355-365.
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  24. Peter A.G. VanBergeijk & Jan Marc Berk, . "The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure," IEW - Working Papers iewwp082, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  26. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April. [Downloadable!] (restricted)
  27. Aleksander Berentsen & Guillaume Rocheteau, . "Money and the Gains from Trade," IEW - Working Papers iewwp100, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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    • Aleksander Berentsen & Guillaume Rocheteau, 2003. "Money and the Gains from Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February. [Downloadable!] (restricted)
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  29. Bruno Frey & Alois Stutzer, 2001. "Beyond Bentham -- Measuring Procedural Utility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  31. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers iewwp052, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2009. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," NBER Working Papers 14980, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Randall Wright, 2005. "Introduction to "Models of Monetary Economies II: The Next Generation"," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Oct, pages 2-9.
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  3. Miquel Faig & Belen Jerez, 2005. "Inflation, Prices, And Information In Competitive Search," Economics Working Papers we051708, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  4. Guillaume Rocheteau, 2008. "Money and competing assets under private information," Working Paper 0802, Federal Reserve Bank of Cleveland. [Downloadable!]
  5. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December. [Downloadable!]
  6. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  7. Guillaume Rocheteau, 2009. "A monetary approach to asset liquidity," Working Paper 0901, Federal Reserve Bank of Cleveland. [Downloadable!]
  8. Eduardo Giménez, 2007. "On the positive fundamental value of money with short-sale constraints," Annals of Finance, Springer, vol. 3(4), pages 455-469, October. [Downloadable!] (restricted)
  9. Richard Dutu & Ed Nosal & Guillaume Rocheteau, 2005. "On the recognizability of money," Working Paper 0512, Federal Reserve Bank of Cleveland. [Downloadable!]
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