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Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model

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  • Tai-wei Hu
  • John Kennan
  • Neil Wallace

Abstract

The Lagos-Wright model-a monetary model in which pairwise meetings alternate in time with a centralized meeting-has been extensively analyzed, but always using particular trading protocols. Here, trading protocols are replaced by two alternative notions of implementability: one that allows only individual defections and one that also allows cooperative defections in meetings. It is shown that the first-best allocation is implementable under the stricter notion without taxation if people are sufficiently patient. And, if people are free to skip the centralized meeting, then lump-sum taxation used to pay interest on money does not enlarge the set of implementable allocations. (c) 2009 by The University of Chicago. All rights reserved.

Suggested Citation

  • Tai-wei Hu & John Kennan & Neil Wallace, 2009. "Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 116-137, February.
    • Handle: RePEc:ucp:jpolec:v:117:y:2009:i:1:p:116-137
    DOI: 10.1086/597597
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    References listed on IDEAS

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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