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Money and Information Author info | Abstract | Publisher info | Download info | Related research | Statistics Aleksander Berentsen
Guillaume Rocheteau
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This paper investigates the role of fiat money in decentralized markets, where producers have private information about the quality of the goods they supply. Money is divisible, terms of trade are determined endogenously, and agents can finance their consumption with money or with real production. When the fraction of high quality producers in the economy is given, money promotes the production of high-quality goods, which improves the quality mix and welfare unambiguously. When this fraction is endogenous, however, we find that money can be valued even though it decreases welfare relative to the barter equilibrium. The origin of this ine .ciency is that money provides consumption insurance to low-quality producers, which can result in a higher fraction of low-quality producers in the monetary equilibrium. Finally, we find that most often agents acquire more information in the monetary equilibrium. Consequently, money is welfare-enhancing because it promotes useful production and exchange, but not because it saves information costs.
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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number
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Keywords: Money ; search ; adverse selection ; moral hazard ; Other versions of this item:
Find related papers by JEL classification: E00 - Macroeconomics and Monetary Economics - - General - - - General D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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references Cited by : (explanations , 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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