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Money and Storage in a Differential Information Economy

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  • Huggett, Mark
  • Krasa, Stefan

Abstract

Is the use of fiat money essential in any efficient organization of exchange? We investigate this question in economies that are generalizations of the Townsend (1980) turnpike model that include limited commitment and differential information. We show that in the Townsend turnpike model fiat money is not essential unless there is limited commitment. Furthermore, fiat money has no role whenever there is storage with positive returns. In the presence of differential information fiat money is essential in overcoming incentive problems. This is the case even if there is storage with positive returns.

Suggested Citation

  • Huggett, Mark & Krasa, Stefan, 1996. "Money and Storage in a Differential Information Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 191-210, August.
  • Handle: RePEc:spr:joecth:v:8:y:1996:i:2:p:191-210
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    Cited by:

    1. David C. Mills, Jr, 2004. "Mechanism Design and the Role of Enforcement in Freeman's Model of Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 219-236, january.
    2. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 191-205.
    3. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
    4. R. O. Cavalcanti & Daniela Puzzello, 2010. "Stationarity without degeneracy in a model of commodity money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 263-280, May.
    5. Narayana R. Kocherlakota, 2000. "Societal benefits of nominal bonds," Staff Report 275, Federal Reserve Bank of Minneapolis.
    6. Camera, Gabriele & Gioffré, Alessandro, 2014. "Game-theoretic foundations of monetary equilibrium," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 51-63.
    7. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    8. Kocherlakota, Narayana R., 2003. "Societal benefits of illiquid bonds," Journal of Economic Theory, Elsevier, vol. 108(2), pages 179-193, February.
    9. Aliprantis, C.D. & Camera, G. & Puzzello, D., 2007. "A random matching theory," Games and Economic Behavior, Elsevier, vol. 59(1), pages 1-16, April.
    10. D. Aliprantis, C. & Camera, G. & Puzzello, D., 2007. "Anonymous markets and monetary trading," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1905-1928, October.
    11. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-20.
    12. Boel, Paola & Camera, Gabriele, 2006. "Efficient monetary allocations and the illiquidity of bonds," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1693-1715, October.
    13. Camera, Gabriele & Vesely, Filip, 2007. "Trading horizons and the value of money," European Economic Review, Elsevier, vol. 51(7), pages 1751-1767, October.
    14. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
    15. William Luther, 2016. "Mises and the moderns on the inessentiality of money in equilibrium," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(1), pages 1-13, March.
    16. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers 578, Federal Reserve Bank of Minneapolis.
    17. Wallace, Neil, 2000. "A model of the liquidity structure based on asset indivisibility," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 55-68, February.
    18. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 415-432, October.

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