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The Appearance of Carriers and the Origins of Money

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  • Jose Noguera S.

    (CERGE-EI)

Abstract

The main goal of this essay is to provide microfoundations in a spatial general equilibrium framework for the fact that individuals use money to make transactions, and hence microfoundations for the cash in advance constraint. We analyze the emergence of a monetary economy out of a redistribution barter system where goods are sent to a central market and then redistributed among individuals. We show that, as the population increases beyond a certain point, the barter exchange system becomes too expensive. To reduce the exchange system cost, and as a result of individuals’ rational behavior, a new specialized merchant, the carrier, appears and causes frictions among traders leading to the appearance of money. There are, however, certain conditions for this process to succeed. These conditions concern the economic characteristics of those goods chosen to act as money, and the level of economic development.

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File URL: http://128.118.178.162/eps/mac/papers/0012/0012014.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0012014.

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Length: 36 pages
Date of creation: 12 Feb 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0012014

Note: Type of Document - Acrobat PDF; pages: 36 ; figures: included
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Web page: http://128.118.178.162

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Keywords: Barter; Money; Carrier; Market center; City; Transaction cost;

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  1. Berliant, Marcus & Konishi, Hideo, 2000. "The endogenous formation of a city: population agglomeration and marketplaces in a location-specific production economy," Regional Science and Urban Economics, Elsevier, vol. 30(3), pages 289-324, May.
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  3. Jose Noguera, 2000. "Barter Economies and Centralized Merchants," CERGE-EI Working Papers wp162, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Gale, Douglas, 1978. "The core of a monetary economy without trust," Journal of Economic Theory, Elsevier, vol. 19(2), pages 456-491, December.
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  8. Anas, Alex, 1992. "On the birth and growth of cities: : Laissez-faire and planning compared," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 243-258, June.
  9. Laidler, D., 1996. "Notes on the Microfoundations of Monetary Economics," UWO Department of Economics Working Papers 9610, University of Western Ontario, Department of Economics.
  10. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  11. Jack Ochs & John Duffy, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September.
  12. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, September.
  13. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247, September.
  14. Fujita, Masahisa, 1988. "A monopolistic competition model of spatial agglomeration : Differentiated product approach," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 87-124, February.
  15. Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
  16. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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