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Money and the Gains from Trade

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Author Info
Aleksander Berentsen (University of Basel)
Guillaume Rocheteau (Australian National University, Australia)

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Abstract

This article studies the role of money in environments where in each meeting there is a double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other's good, they produce and exchange socially inefficient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association

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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 1 (February)
Pages: 263-297
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Handle: RePEc:ier:iecrev:v:44:y:2003:i:1:p:263-297

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  2. 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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  3. 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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  4. 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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  5. Bruno S. Frey & Stephan Meier, . "Political Economists are Neither Selfish nor Indoctrinated," IEW - Working Papers iewwp069, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  6. Ralf Becker & Urs Fischbacher & Thorsten Hens, . "Soft Landing of a Stock Market Bubble, An Experimental Study," IEW - Working Papers iewwp090, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  14. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2001. "Fairness, Incentives and Contractual Incompleteness," CEPR Discussion Papers 2790, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. 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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  17. 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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  19. Bruno Frey, 2001. "Flexible Citizenship for a Global Society," Berkeley Olin Program in Law & Economics, Working Paper Series 1018, Berkeley Olin Program in Law & Economics. [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. Zeira, Joseph, 2005. "Money and the Size of Transactions," CEPR Discussion Papers 5010, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland. [Downloadable!]
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  3. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics. [Downloadable!]
  4. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, . "Friedman Meets Hosios: Efficiency in Search Models of Money," IEW - Working Papers iewwp154, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  5. repec:bep:maccon:v:3:y:2003:i:1:p:1121-1121 is not listed on IDEAS
  6. Brian Peterson & Shouyong Shi, 2006. "Money, Price Dispersion and Welfare," Working Papers tecipa-191, University of Toronto, Department of Economics. [Downloadable!]
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  7. 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!]
  8. Nicola Amendola, 2008. "A "Double Coincidence" Search Model of Money," CEIS Research Paper 126, Tor Vergata University, CEIS, revised 18 Jul 2008. [Downloadable!]
    Other versions:
  9. Guillaume Rocheteau & Peter Rupert & Randall Wright, 2007. "Inflation and Unemployment in General Equilibrium," University of California at Santa Barbara, Economics Working Paper Series 07-07, Department of Economics, UC Santa Barbara. [Downloadable!]
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