Barter, Liquidity and Market Segmentation

Canice Prendergast and Lars Stole

No 586, CESifo Working Paper Series from CESifo

Abstract: This paper explores the private and social benefits from barter exchange in a monetized economy. We first prove a no-trade theorem regarding the ability of firms with double-coincidences-of-wants to negotiate improvements in trade among themselves relative to the market outcomes. We then demonstrate that in the presence of liquidity shocks, introducing a non-monetary exchange avoids this limitation and enhances trade by (1) generating liquidity and (2) by segmenting the market place into low-demand and high-demand customers in a manner which is impossible with pure monetary exchange. We provide comparative statics illustrating the importance of each effect and relevant extensions.

Keywords: barter; exchange (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (11)

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