Wealth as a Signal in the Search Model of Money

Tsunao Okumura

No 1401, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: This paper investigates the possibility that wealth (holdings of money) serves as a signal of ability to produce high quality products for agents who cannot directly observe the quality of the products. A producer’s wealth may advertise past success in selling products to agents who knew the producer’s ability and thus signal its ability. This analysis shows that such signaling effects may arise in equilibrium and may lead to more unequal distributions of wealth and lower welfare than would otherwise arise.

Keywords: Random matching; Money holdings; Signaling; Distribution of wealth; Welfare; Divisible money; Product quality. (search for similar items in EconPapers)
JEL-codes: D31 D82 D83 E40 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: WEALTH AS A SIGNAL IN THE SEARCH MODEL OF MONEY * (2006)
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