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Equilibrium and Media of Exchange in a Convex Trading Post Economy with Transaction Costs


  • Starr, Ross M.


General equilibrium is investigated with N commodities traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity undertaken by firms recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices (quoted as commodity rates of exchange). Budget constraints are enforced at each trading post separately so that there is demand for a carrier of value between trading posts, commidty money. Existence of generaly equilibrium is established under conventional convexity and continuity conditions and technical assumptions assuring boundedness of price ratios. Trade in media of exchange (commodity money) is the difference between household gross and net trades.

Suggested Citation

  • Starr, Ross M., 2006. "Equilibrium and Media of Exchange in a Convex Trading Post Economy with Transaction Costs," University of California at San Diego, Economics Working Paper Series qt0ct6f4nc, Department of Economics, UC San Diego.
  • Handle: RePEc:cdl:ucsdec:qt0ct6f4nc

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    References listed on IDEAS

    1. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-439, May.
    2. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    3. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
    4. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September.
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