IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Existence of Uniqueness of "Money" in General Equilibrium: Natural Monopoly in the Most Liquid Asset

  • Starr, Ross M.
Registered author(s):

    The monetary character of trade, use of a common medium of exchange, is shown to be an outcome of economic general equilibrium in the presence of transaction costs and market segmentation (in trading posts with a separate budget constraint at each transaction). Commodity money arises endogenously as the most liquid (lowest trasaction cost) asset. Scale economies in transaction cost account for uniqueness of the (fiat or commodity) money in equilibrium, creating a natural monopoly. Trading posts using a medium of exchange create a network externality inducing others' adoption of the same medium. Bertrand monetary equilibria (among competing trading posts) and uniqueness of 'money' are robust to threats of entry. Government-issued fiat money has a positive equilibrium value from its acceptability for tax payments and sustains its natural monopoly through the scale of government economic activity.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.escholarship.org/uc/item/660465rm.pdf;origin=repeccitec
    Download Restriction: no

    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt660465rm.

    as
    in new window

    Length:
    Date of creation: 21 Nov 2002
    Date of revision:
    Handle: RePEc:cdl:ucsdec:qt660465rm
    Contact details of provider: Postal: 9500 Gilman Drive, La Jolla, CA 92093-0508
    Phone: (858) 534-3383
    Fax: (858) 534-7040
    Web page: http://www.escholarship.org/repec/ucsdecon/
    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
    2. Rey, Hélène, 1999. "International Trade and Currency Exchange," CEPR Discussion Papers 2226, C.E.P.R. Discussion Papers.
    3. Joseph M. Ostroy & Ross M. Starr, 1988. "The Transactions Role of Money," UCLA Economics Working Papers 505, UCLA Department of Economics.
    4. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September.
    5. Banerjee, Abhijit V & Maskin, Eric S, 1996. "A Walrasian Theory of Money and Barter," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 955-1005, November.
    6. Christian Hellwig, 2000. "Money, Intermediaries and Cash-in-Advance Constraints," Econometric Society World Congress 2000 Contributed Papers 1631, Econometric Society.
    7. Clower, Robert W, 1995. "On the Origin of Monetary Exchange," Economic Inquiry, Western Economic Association International, vol. 33(4), pages 525-36, October.
    8. Joseph M. Ostroy & Ross M. Starr, 1973. "Money and the Decentralization of Exchange," UCLA Economics Working Papers 041, UCLA Department of Economics.
    9. Kurz, Mordecai, 1974. "Equilibrium in a Finite Sequence of Markets with Transaction Cost," Econometrica, Econometric Society, vol. 42(1), pages 1-20, January.
    10. Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
    11. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-75, August.
    12. Alchian, Armen A, 1977. "Why Money?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 133-40, February.
    13. Joseph M. Ostroy, 1972. "The Informational Efficiency of Monetary Exchange," UCLA Economics Working Papers 021, UCLA Department of Economics.
    14. Starr, Ross M, 1974. "The Price of Money in a Pure Exchange Monetary Economy with Taxation," Econometrica, Econometric Society, vol. 42(1), pages 45-54, January.
    15. Starrett, David A, 1973. "Inefficiency and the Demand for "Money" in a Sequence Economy," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 437-48, October.
    16. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-39, May.
    17. 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.
    18. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:cdl:ucsdec:qt660465rm. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.