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Communal Responsibility and the Coexistence of Money and Credit Under Anonymous Matching

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  • Boerner, Lars
  • Ritschl, Albrecht

Abstract

Communal responsibility, a medieval institution studied by Greif (2006), supported the use of credit among European merchants in the absence of modern enforcement technologies. This paper shows how this mechanism helps to overcome enforcement problems in anonymous buyer/seller transactions. In a village economy version of the Lagos and Wright (2005) model, agents trading anonymously in decentralized markets can be identified by their citizenship and thus be held liable for each other. Enforceability within each village's centralized afternoon market ensures collateralization of credit in decentralized markets. In the resulting equilibrium, money and credit coexist in decentralized markets if the use of credit is costly. Our analysis easily extends itself to other payment systems like credit cards that provide a group identity to otherwise anonymous agents.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8184.

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Date of creation: Jan 2011
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Handle: RePEc:cpr:ceprdp:8184

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Keywords: anonymous matching; bills of exchange; Communal responsibility; money and credit demand;

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  1. Freeman, Scott & Huffman, Gregory W, 1991. "Inside Money, Output, and Causality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-67, August.
  2. Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 629-647.
  3. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
  4. Lacker, Jeffrey M. & Schreft, Stacey L., 1996. "Money and credit as means of payment," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 3-23, August.
  5. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
  6. Satyajit Chatterjee & Dean Corbae, 1996. "Money and finance with costly commitment," Working Papers 96-8, Federal Reserve Bank of Philadelphia.
  7. Belen Jerez & Miquel Faig, 2005. "Inflation, Prices, and Information in Competitive Search," 2005 Meeting Papers 462, Society for Economic Dynamics.
  8. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  9. Börner, Lars & Hatfield, John William, 2010. "The economics of debt clearing mechanisms," Discussion Papers 2010/27, Free University Berlin, School of Business & Economics.
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Cited by:
  1. Basteck, Christian & Daniëls, Tijmen R., 2011. "Every symmetric 3×3 global game of strategic complementarities has noise-independent selection," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 749-754.
  2. Börner, Lars & Hatfield, John William, 2010. "The economics of debt clearing mechanisms," Discussion Papers 2010/27, Free University Berlin, School of Business & Economics.
  3. Lars Boerner & Albrecht Ritschl, 2008. "The economic history of sovereignty: communal responsibility, the extended family, and the firm," Economic History Working Papers 22307, London School of Economics and Political Science, Department of Economic History.

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