The Role of Money in Double Coincidence Environments

Aleksander Berentsen and Guillaume Rocheteau

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: This paper studies the role of money in asymmetric double coincidence of real wants environments where in each meeting each agent is a consumer of the other agent's production. Traders who meet at random finance their purchases through current production, sale of divisible money, or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other's good, they produce and exchange socially inefficient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is also shown that terms of trades in the monetary economy are strictly better than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased.

Keywords: money; double coincidence; bargaining; search (search for similar items in EconPapers)
JEL-codes: D83 E00 E52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2000-07
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Citations: View citations in EconPapers (1)

Published in International Economic Review, (title: "Money and the Gains from Trade") vol. 44 (1), Feb. 2003, pp. 263-297

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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:00.18

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