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Money as minimal complexity

Pradeep Dubey, Siddhartha Sahi and Martin Shubik

Games and Economic Behavior, 2018, vol. 108, issue C, 432-451

Abstract: We consider mechanisms that provide the opportunity to exchange commodity i for commodity j, for certain ordered pairs ij. Given any connected graph G of opportunities, we show that there is a unique “G-mechanism” that satisfies some natural conditions of “fairness” and “convenience”. Next we define time and price complexity for any G-mechanism as (respectively) the time required to exchange i for j, and the information needed to determine the exchange ratio (each for the worst pair ij). If the number of commodities exceeds three, there are precisely three minimally complex G-mechanisms, where G corresponds to the star, cycle and complete graphs. The star mechanism has a distinguished commodity — the money — that serves as the sole medium of exchange and mediates trade between decentralized markets for the other commodities. Furthermore, for any weighted sum of complexities, the star mechanism is the unique minimizer of the sum for large enough m.

Keywords: Exchange mechanism; Minimal complexity; Money (search for similar items in EconPapers)
JEL-codes: C70 C72 C79 D44 D63 D82 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Money as Minimal Complexity (2015) Downloads
Working Paper: Money as Minimal Complexity (2015) Downloads
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