Money and Storage in a Differential Information Economy

Mark Huggett and Stefan Krasa

Economic Theory, 1996, vol. 8, issue 2, 210 pages

Abstract: Is the use of fiat money essential in any efficient organization of exchange? We investigate this question in economies that are generalizations of the Townsend (1980) turnpike model that include limited commitment and differential information. We show that in the Townsend turnpike model fiat money is not essential unless there is limited commitment. Furthermore, fiat money has no role whenever there is storage with positive returns. In the presence of differential information fiat money is essential in overcoming incentive problems. This is the case even if there is storage with positive returns.

Date: 1996
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