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Jack of All Trades or a Master of One? Specialization, Trade, and Money

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  • Gabriele Camera
  • Robert R. Reed
  • Christopher J. Waller

Abstract

We consider a model of decentralized exchange where individuals choose the set of goods they produce. Specialization involves producing a smaller set of goods and doing it more proficiently. In doing so, agents reduce production costs, but also reduce the ease of trading their output. We derive the equilibrium degree of specialization and examine how it is affected by underlying fundamentals. Due to the existence of a hold-up problem, individuals specialize too little relative to the social optimum. Introducing money leads to more specialization relative to barter and increases welfare. 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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Bibliographic 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): 4 (November)
Pages: 1275-1294

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Handle: RePEc:ier:iecrev:v:44:y:2003:i:4:p:1275-1294

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Cited by:
  1. Jun Zhang & Haibin Wu, 2004. "Money, Technology Choice and Pattern of Exchange in Search Equilibrium," Econometric Society 2004 North American Summer Meetings 212, Econometric Society.
  2. Mukoyama, Toshihiko & Sahin, Ayseg├╝l, 2009. "Specialization and efficiency with labor-market matching," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 221-236, January.
  3. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report 443, Federal Reserve Bank of Minneapolis.
  4. S. Boragan Aruoba & Christopher J. Waller, 2005. "Money and Capital," 2005 Meeting Papers 550, Society for Economic Dynamics.
  5. Shouyong Shi, 2002. "The Extent of the Market and the Optimal Degree of Specialization," Working Papers shouyong-02-02, University of Toronto, Department of Economics.
  6. William Blankenau & Gabriele Camera, 2006. "A Simple Economic Theory of Skill Accumulation and Schooling Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 93-115, January.
  7. Dean Corbae & Borghan N. Narajabad, 2006. "Motelling: A Hotelling Model with Money," 2006 Meeting Papers 778, Society for Economic Dynamics.
  8. Shawky, Hany A. & Dai, Na & Cumming, Douglas, 2012. "Diversification in the hedge fund industry," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 166-178.

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