A Theory of Money with Market Places
This paper considers an infinitely repeated economy in which divisible fiat money is used to trade goods. The economy has many market places. In each period, each agent chooses a market place, randomly meets someone who comes to the same market place, and they trade their goods when both agree to do so. There exist various classes of stationary equilibria. In some equilibria, all the agents visit the same market place, while in others, market places are specialized, i.e., only one type of good is traded in each active market place. In some equilibria, each good is traded at a single price, while in others, every good is traded at two different prices. Each class itself consists of equilibria with infinitely many price and welfare levels. However, it is shown that only efficient single price equilibria with specialized market places are evolutionarily stable. An inefficient equilibrium is upset by the mutants who visit a new market place to establish a more efficient trading pattern than before. An extension to the case with multiple currencies is also examined.
|Date of creation:||Sep 2000|
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