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Jack of All Trades or a Master of One? Specialization, Trade, and Money


  • Gabriele Camera
  • Robert R. Reed
  • Christopher J. Waller


We consider a model of decentralized exchange where individuals choose the set of goods they produce. Specialization involves producing a smaller set of goods and doing it more proficiently. In doing so, agents reduce production costs, but also reduce the ease of trading their output. We derive the equilibrium degree of specialization and examine how it is affected by underlying fundamentals. Due to the existence of a hold-up problem, individuals specialize too little relative to the social optimum. Introducing money leads to more specialization relative to barter and increases welfare. Copyright 2003 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Gabriele Camera & Robert R. Reed & Christopher J. Waller, 2003. "Jack of All Trades or a Master of One? Specialization, Trade, and Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1275-1294, November.
  • Handle: RePEc:ier:iecrev:v:44:y:2003:i:4:p:1275-1294

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    References listed on IDEAS

    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. Dobson, Paul W., 1994. "Multifirm unions and the incentive to adopt pattern bargaining in oligopoly," European Economic Review, Elsevier, vol. 38(1), pages 87-100, January.
    4. Kathryn J. Ready, 1990. "Is Pattern Bargaining Dead?," ILR Review, Cornell University, ILR School, vol. 43(2), pages 272-279, January.
    5. Daniel Diermeier & Roger B. Myerson, 1994. "Bargaining," Discussion Papers 1089, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    Cited by:

    1. Mukoyama, Toshihiko & Sahin, Ayseg├╝l, 2009. "Specialization and efficiency with labor-market matching," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 221-236, January.
    2. Shawky, Hany A. & Dai, Na & Cumming, Douglas, 2012. "Diversification in the hedge fund industry," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 166-178.
    3. Aruoba, S. Boragan & Waller, Christopher J. & Wright, Randall, 2011. "Money and capital," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 98-116, March.
    4. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
    5. Avi Weiss & Gabriele Camera & Dror Goldberg, 2016. "Endogenous Market Formation and Monetary Trade: an Experiment," Working Papers 2016-04, Bar-Ilan University, Department of Economics.
    6. Dean Corbae & Borghan N. Narajabad, 2006. "Motelling: A Hotelling Model with Money," 2006 Meeting Papers 778, Society for Economic Dynamics.
    7. Jun Zhang & Haibin Wu, 2004. "Money, Technology Choice and Pattern of Exchange in Search Equilibrium," Econometric Society 2004 North American Summer Meetings 212, Econometric Society.
    8. William Blankenau & Gabriele Camera, 2006. "A Simple Economic Theory of Skill Accumulation and Schooling Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 93-115, January.
    9. Shouyong Shi, 2002. "The Extent of the Market and the Optimal Degree of Specialization," Working Papers shouyong-02-02, University of Toronto, Department of Economics.

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