A "double coincidence" search model of money
AbstractAccording to Engineer and Shi (1998, 2001) and Berentsen and Rocheteau (2003), the double coincidence of wants problem seems to be not essential to rationalize the use of money in a search theoretic framework. This paper analyzes an endogenous price search model of money where there is universal double coincidence of wants. The existence of a monetary equilibrium depends, essentially, on the asymmetry in the role played by economic agents in the exchange and production processes. In particular, entrepreneurs are assumed to produce a fixed amount of a divisible consumption good by means of labour services provided by workers. Entrepreneurs can offer a co-operative (barter) contract or a monetary contract to workers. Under the co-operative contract real wages are determined in the labour exchange sector, while in the monetary regime real wages are determined in the commodity exchange sector. The monetary contract is proved to be an equilibrium strategy provided that: (i) the workers' labour disutility is sufficiently high and/or (ii) the entrepreneurs' bargaining power in the commodity market is sufficiently large relative to their bargaining power in the labour market. The rationale for money comes from the fact that entrepreneurs use it as an instrument to maximize their output share.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7839.
Date of creation: 19 Mar 2008
Date of revision:
Money; Search; Double Coincidence; Bargaining;
Other versions of this item:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-CBA-2008-03-25 (Central Banking)
- NEP-DGE-2008-03-25 (Dynamic General Equilibrium)
- NEP-MAC-2008-03-25 (Macroeconomics)
- NEP-MON-2008-03-25 (Monetary Economics)
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.:
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- Shouyong Shi, 2006. "Viewpoint: A microfoundation of monetary economics," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 643-688, August.
- Engineer, Merwan & Shouying Shi, 1998. "Asymmetry, imperfectly transferable utility, and the role of fiat money in improving terms of trade," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 153-183, February.
- Aleksander Berentsen & Guillaume Rocheteau, 2003.
"Money and the Gains from Trade,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February.
- Nicola Amendola, 2008. "A selection mechanism for the barter equilibrium in the search theoretic monetary model," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-10.
- repec:ebl:ecbull:v:5:y:2008:i:2:p:1-10 is not listed on IDEAS
- Dean Corbae & Ted Temzelides & Randall Wright, 2002. "Matching and Money," American Economic Review, American Economic Association, vol. 92(2), pages 67-71, May.
- Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
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