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

Tai-wei Hu, John Kennan () and Neil Wallace

Journal of Political Economy, 2009, vol. 117, issue 1, pages 116-137

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 without 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. (c) 2009 by The University of Chicago. All rights reserved..

Date: 2009

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Working Paper: Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model (2007)
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