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Barter Economies and Centralized Merchants

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  • Jose Noguera S.

    (CERGE-EI)

Abstract

The main goal of this essay is to analyze the emergence of a barter economy, and the rise of centralized merchants and a barter redistribution system out of a primitive barter system. The environment is a spatial general equilibrium model where exchange is costly. Since exchange becomes more complicated as the scope of the economy increases, we prove that, after the economy reaches a critical size, the cost of trade expansion surpasses its benefits. This imposes limitations on the scope of the economy and the production level. To overcome these limitations, rational individuals can develop a more advanced barter system leading to the appearance of centralized merchants. This more sophisticated system is the redistribution system. We also show that under some circumstances, in the presence of transaction costs it may be optimal for individuals to keep using barter instead of adopting a monetary system. This result explains why some primitive economies, like the Incas in Peru and ancient Egypt, did not evolve to a monetary system, and kept barter as their main exchange system.

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File URL: http://128.118.178.162/eps/mac/papers/0012/0012015.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0012015.

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Length: 30 pages
Date of creation: 12 Feb 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0012015

Note: Type of Document - Acrobat PDF; pages: 30 ; figures: included
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Web page: http://128.118.178.162

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Keywords: Barter; City; Exchange system; Market center; Merchant; Redistribution system; Transaction cost;

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References

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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.
  2. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  3. 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.
  4. Clower, Robert W, 1995. "On the Origin of Monetary Exchange," Economic Inquiry, Western Economic Association International, vol. 33(4), pages 525-36, October.
  5. 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.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, September.
  8. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247, September.
  9. Solow, Robert M. & Vickrey, William S., 1971. "Land use in a long narrow city," Journal of Economic Theory, Elsevier, vol. 3(4), pages 430-447, December.
  10. E Borukhov & O Hochman, 1977. "Optimum and market equilibrium in a model of a city without a predetemined center," Environment and Planning A, Pion Ltd, London, vol. 9(8), pages 849-856, August.
  11. Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
  12. Wang, P., 1990. "Endogenous Market Structure and the Use of Money in a Spatially Heterogeneous Economy," Papers 12-90-6, Pennsylvania State - Department of Economics.
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Cited by:
  1. Jose Noguera S., 2001. "The Appearance of Carriers and the Origins of Money," Macroeconomics 0012014, EconWPA.

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