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

  • Starr, Ross M.
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    General equilibrium is investigated with N commodities traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transactions 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 implying demand for a carrier of value between trading posts, commodity money. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask prices. Trade in media of exchange (commodity money) is the difference between gross and net inter-post trades.

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    File URL: http://www.escholarship.org/uc/item/3wx6s4z8.pdf;origin=repeccitec
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    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt3wx6s4z8.

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    Date of creation: 05 Jul 2007
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    Handle: RePEc:cdl:ucsdec:qt3wx6s4z8
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    1. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-39, May.
    2. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September.
    3. Dror Goldberg, 2012. "The tax-foundation theory of fiat money," Economic Theory, Springer, vol. 50(2), pages 489-497, June.
    4. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
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