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Indivisible Goods and Fiat Money

  • Jorge Rivera
  • Michael Florig

In spite of fiat money is useless in a standard Arrow-Debreu model, in this paper we will show that this does not hold true anymore when goods are indivisible. In our setting, although fiat money yields no utility, its price will always be positive and the set of equilibrium allocations changes with the distribution of fiat money. Its role lies in the fact that it could be used to facilitate exchange. Since a Walras equilibrium does not always exist when goods are indivisible, a new equilibrium concept - called rationing equilibrium - is introduced and its existence is proven under weak assumptions on the economy. A Walras equilibrium exists generically on the distribution of fiat money

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 167.

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Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:ecm:latm04:167
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