Money and Middlemen in an Economy with Private Information

Yiting Li ()

Economic Inquiry, 1999, vol. 37, issue 1, 1-12

Abstract: This paper extends the Williamson-Wright model to study interaction between money and middlemen in an economy with qualitative uncertainty concerning the consumption goods. It is shown that, with private information as the only trading friction, given that expert middlemen endogenously arise, people may still be willing to adopt indirect exchange involving money. Generally recognizable money improves welfare by promoting useful exchange and economizing on the cost of agents becoming middlemen. In an economy with trading frictions caused by private information and a double coincidence of wants problem, the authors show that there is room for both intermediary institutions. Copyright 1999 by Oxford University Press.

Date: 1999
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