We offer a simple economic model of repeated barter to explore current economic exchange in Russia: individuals trade with each other in a dynamic environment where the threat of dissolving the relationship constrains the incentives to cheat. We show how the value of future interactions affects the willingness of individuals to trade with each other; only when rates of interaction are large can trust compensate for an absence of money. Moreover, when trading relationships are asymmetric – either in the trading partners’ values for each other’s goods or in their relative bargaining power – the resulting barter allocations are distorted, as goods must be used for liquidity reasons. When third-party middlemen exist who can facilitate barter, they command a premium for their services, and have preferences for improved liquidity which may or may not correspond with the other traders in the barter economy. Fourth, we demonstrate that the restriction of trading to tight trading networks may be a socially efficient response to insufficient barter interactions. Finally, we consider how liquidity constraints affect pricing, and illustrate how the existence of a barter market can mute incentives to change prices in response to credit crunches.
|Date of creation:||Jan 2000|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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.:
- Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo Group Munich.
- Prendergast, Canice & Stole, Lars, 1999. "Restricting the means of exchange within organizations," European Economic Review, Elsevier, vol. 43(4-6), pages 1007-1019, April.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:33400. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.