Barter Economies and Centralized Merchants
The main goal of this essay is to analyze the emergence of a barter economy, and the rise of centralized merchants and a barter redistribution system out of a primitive barter system. The environment is a spatial general equilibrium model where exchange is costly. Since exchange becomes more complicated as the scope of the economy increases, we prove that, after the economy reaches a critical size, the cost of trade expansion surpasses its benefits. This imposes limitations on the scope of the economy and the production level. To overcome these limitations, rational individuals can develop a more advanced barter system leading to the appearance of centralized merchants. This more sophisticated system is the redistribution system. We also show that under some circumstances, in the presence of transaction costs it may be optimal for individuals to keep using barter instead of adopting a monetary system. This result explains why some primitive economies, like the Incas in Peru and ancient Egypt, did not evolve to a monetary system, and kept barter as their main exchange system.
|Date of creation:||Oct 2000|
|Contact details of provider:|| Postal: P.O. Box 882, Politickych veznu 7, 111 21 Praha 1|
Phone: (+420) 224 005 123
Fax: (+420) 224 005 333
Web page: http://www.cerge-ei.cz
More information through EDIRC
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.:
- Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
- Solow, Robert M. & Vickrey, William S., 1971. "Land use in a long narrow city," Journal of Economic Theory, Elsevier, vol. 3(4), pages 430-447, December.
- Berliant, Marcus & Konishi, Hideo, 2000.
"The endogenous formation of a city: population agglomeration and marketplaces in a location-specific production economy,"
Regional Science and Urban Economics,
Elsevier, vol. 30(3), pages 289-324, May.
- Marcus Berliant & Hideo Konishi, 2000. "The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy," Boston College Working Papers in Economics 451, Boston College Department of Economics.
- E Borukhov & O Hochman, 1977. "Optimum and Market Equilibrium in a Model of a City without a Predetermined Center," Environment and Planning A, , vol. 9(8), pages 849-856, August.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- 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.
- Robert W. Clower & Peter W. Howitt, 1976. "Money,Credit and the Timing of Transactions," UCLA Economics Working Papers 072, UCLA Department of Economics.
- Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
- Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
- Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247.
- E Borukhov & O Hochman, 1977. "Optimum and market equilibrium in a model of a city without a predetemined center," Environment and Planning A, Pion Ltd, London, vol. 9(8), pages 849-856, August.
- Wang, P., 1990. "Endogenous Market Structure and the Use of Money in a Spatially Heterogeneous Economy," Papers 12-90-6, Pennsylvania State - Department of Economics.
- Clower, Robert W, 1995. "On the Origin of Monetary Exchange," Economic Inquiry, Western Economic Association International, vol. 33(4), pages 525-536, October.
- Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
- Anas, Alex, 1992. "On the birth and growth of cities: : Laissez-faire and planning compared," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 243-258, June. Full references (including those not matched with items on IDEAS)