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Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model

Author

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  • Tai-wei Hu
  • John Kennan
  • Neil Wallace

Abstract

The Lagos-Wright model -- a monetary model in which pairwise meetings alternate in time with a centralized meeting -- has been extensively analyzed, but always using particular trading protocols. Here, trading protocols are replaced by two alternative notions of implementability: one that allows only individual defections and one that also allows cooperative defections in meetings. It is shown that the first-best allocation is implementable under the stricter notion with- out taxation if people are sufficiently patient. And, if people are free to skip the centralized meeting, then lump-sum taxation used to pay interest on money does not enlarge the set of implementable allocations.

Suggested Citation

  • Tai-wei Hu & John Kennan & Neil Wallace, 2007. "Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model," NBER Working Papers 13310, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13310
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    References listed on IDEAS

    as
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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