Advanced Search
MyIDEAS: Login to save this article or follow this journal

Bargaining and the value of money

Contents:

Author Info

  • Boragan Aruoba, S.
  • Rocheteau, Guillaume
  • Waller, Christopher

Abstract

Search models of monetary exchange have typically relied on Nash (1950) bargaining or strategic games that yield an equivalent outcome to determine the terms of trade. By considering alternative axiomatic bargaining solutions in a simple search model with divisible money, we show how this choice matters for important results such as the ability of the optimal monetary policy to generate an efficient allocation. We show that the quantities traded in bilateral matches are always inefficiently low under the Nash (1950) and Kalai-Smorodinsky (1975) solutions, whereas under strongly monotonic solutions such as the egalitarian solution (Luce and Raiffa, 1957; Kalai, 1977), the Friedman Rule achieves the first best allocation. We evaluate quantitatively the welfare cost of inflation under the different bargaining solutions, and we extend the model to allow for endogenous market composition.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VBW-4P8GX3Y-1/2/1a07b9e7c65850a2a3cba6784e26084f
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 54 (2007)
Issue (Month): 8 (November)
Pages: 2636-2655

as in new window
Handle: RePEc:eee:moneco:v:54:y:2007:i:8:p:2636-2655

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords:

Other versions of this item:

References

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.:
as in new window
  1. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report, Federal Reserve Bank of Minneapolis 346, Federal Reserve Bank of Minneapolis.
  2. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers, Queen's University, Department of Economics 930, Queen's University, Department of Economics.
  3. Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-69, November.
  4. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 118-41, February.
  5. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 175-202, 01.
  6. Moulin, H., 1984. "Implementing the Kalai-Smorodinsky bargaining solution," Journal of Economic Theory, Elsevier, vol. 33(1), pages 32-45, June.
  7. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2002. "Friedman Meets Hosios: Efficiency in Search Models of Money," Working Papers shouyong-02-04, University of Toronto, Department of Economics.
  8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  9. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  10. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report, Federal Reserve Bank of Minneapolis 218, Federal Reserve Bank of Minneapolis.
  12. Peter Rupert & Martin Schindler & Randall Wright, 2000. "Generalized search-theoretic models of monetary exchange," Working Paper 0005, Federal Reserve Bank of Cleveland.
  13. Ricardo Lagos & Guillaume Rocheteau, 2004. "Money and capital as competing media of exchange," Staff Report, Federal Reserve Bank of Minneapolis 341, Federal Reserve Bank of Minneapolis.
  14. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  15. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 43(3), pages 513-18, May.
  16. Chun, Youngsub & Thomson, William, 1988. "Monotonicity properties of bargaining solutions when applied to economics," Mathematical Social Sciences, Elsevier, vol. 15(1), pages 11-27, February.
  17. Barry O'Neill & Dov Samet & Zvi Wiener & Eyal Winter, 2001. "Bargaining with an Agenda," Game Theory and Information, EconWPA 0110004, EconWPA.
  18. Ehud Kalai, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 179, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Melvyn Cole & Randall Wright, . "A Dynamic Equilibrium Model of Search, Bargaining, and Money," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 97-9, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  20. Kalai, Ehud & Samet, Dov, 1985. "Monotonic Solutions to General Cooperative Games," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 307-27, March.
  21. Curtis, Elisabeth & Wright, Randall, 2004. "Price setting, price dispersion, and the value of money: or, the law of two prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(8), pages 1599-1621, November.
  22. S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2007. "Money and capital," Working Paper 0714, Federal Reserve Bank of Cleveland.
  23. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 18(2), pages 155-162, April.
  24. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  25. Bernhard Rauch, 2000. "A Divisible Search Model of Fiat Money: A Comment," Econometrica, Econometric Society, Econometric Society, vol. 68(1), pages 149-156, January.
  26. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
  27. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 247-274, March.
  28. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 449-60, March.
  29. Ben Craig & Guillaume Rocheteau, 2008. "Inflation and Welfare: A Search Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(1), pages 89-119, 02.
  30. Benoit Julien & John Kennes & Ian King, 2006. "Monetary Exchange with Multilateral Matching," 2006 Meeting Papers, Society for Economic Dynamics 883, Society for Economic Dynamics.
  31. Guillaume Rocheteau & Randall Wright, 2003. "Inflation and Welfare in Models with Trading Frictions," PIER Working Paper Archive 03-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  32. Thomson, W., 1989. "Cooperative Models Of Bargaining," RCER Working Papers 177, University of Rochester - Center for Economic Research (RCER).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:54:y:2007:i:8:p:2636-2655. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.