Money and the Decentralization of Exchange

Joseph Ostroy and Ross M. Starr
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Ross M. Starr: Cowles Foundation, Yale University, https://cowles.yale.edu/

No 349, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A pairwise trading process is formulated subject to conditions of nonnegativity of traders' holdings and quid pro quo. It is shown that that: (i) There is a centralized procedure that achieves the equilibrium allocation for an arbitrary economy. (ii) It is not in general possible to find a decentralized procedure that achieves the equilibrium allocation for an arbitrary economy. (iii) In a monetary economy there is a decentralized procedure that achieves the equilibrium allocation. The usefulness of money is that it allows decentralization of the trading process.

Pages: 52 pages
Date: 1973
Note: CFP 422.
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Citations: View citations in EconPapers (15)

Published in Econometrica (November 1974), 42(6): 1093-1113

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