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Indivisible Goods and Fiat Money

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Author Info
Jorge Rivera
Michael Florig
Abstract

In spite of fiat money is useless in a standard Arrow-Debreu model, in this paper we will show that this does not hold true anymore when goods are indivisible. In our setting, although fiat money yields no utility, its price will always be positive and the set of equilibrium allocations changes with the distribution of fiat money. Its role lies in the fact that it could be used to facilitate exchange. Since a Walras equilibrium does not always exist when goods are indivisible, a new equilibrium concept - called rationing equilibrium - is introduced and its existence is proven under weak assumptions on the economy. A Walras equilibrium exists generically on the distribution of fiat money

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 167.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:167

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Related research
Keywords: competitive equilibrium; indivisible goods; fiat money.;

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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  1. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March. [Downloadable!] (restricted)
  2. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. II. The case of pure exchange with money," Journal of Economic Theory, Elsevier, vol. 24(1), pages 112-142, February. [Downloadable!] (restricted)
  3. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 16(2), pages 443-456, December. [Downloadable!] (restricted)
  4. Broome, John, 1972. "Approximate equilibrium in economies with indivisible commodities," Journal of Economic Theory, Elsevier, vol. 5(2), pages 224-249, October. [Downloadable!] (restricted)
  5. Kajii, Atsushi, 1996. "How to discard non-satiation and free-disposal with paper money," Journal of Mathematical Economics, Elsevier, vol. 25(1), pages 75-84. [Downloadable!] (restricted)
  6. Balasko, Yves, 1982. "Equilibria and efficiency in the fixprice setting," Journal of Economic Theory, Elsevier, vol. 28(1), pages 113-127, October. [Downloadable!] (restricted)
  7. Florig, Michael, 2001. "Hierarchic competitive equilibria," Journal of Mathematical Economics, Elsevier, vol. 35(4), pages 515-546, July. [Downloadable!] (restricted)
  8. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  9. Bewley, Truman, 1983. "A Difficulty with the Optimum Quantity of Money," Econometrica, Econometric Society, vol. 51(5), pages 1485-504, September. [Downloadable!] (restricted)
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  10. Martine Quinzii, 1982. "Core and Competitive Equilibria with Indivisibilities," Cowles Foundation Discussion Papers 644, Cowles Foundation, Yale University. [Downloadable!]
  11. Balasko, Yves & Cass, David & Shell, Karl, 1980. "Existence of competitive equilibrium in a general overlapping-generations model," Journal of Economic Theory, Elsevier, vol. 23(3), pages 307-322, December. [Downloadable!] (restricted)
  12. Konovalov, A., 1998. "Core equivalence in economies with satiation," Discussion Paper 80, Tilburg University, Center for Economic Research. [Downloadable!]
  13. Makarov, V. L., 1981. "Some results on general assumptions about the existence of economic equilibrium," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 87-99, March. [Downloadable!] (restricted)
  14. Douglas Gale & Martin Hellwig, 1984. "A General-Equilibrium Model of the Transactions Demand for Money," STICERD - Theoretical Economics Paper Series 100, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  15. Dreze, Jacques H. & Muller, Heinz, 1980. "Optimality properties of rationing schemes," Journal of Economic Theory, Elsevier, vol. 23(2), pages 131-149, October. [Downloadable!] (restricted)
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