Money and Loans

Dan Bernhardt

Working Paper from Economics Department, Queen's University

Abstract: The conditions under which money is essential to support a Pareto optimum, those where loan mechanisms suffice, and those such that both are essential is examined. In the absence of a coincidence of wants, loans and/or money are necessary to facilitate exchange. In a large economy with a limited communication technology, the expected consequences to reneging are insufficient for the repayment of the utility maximizing level of loans to be time consistent. In contrast, redeemability of money is not associated with a particular agent so money has no time consistency problems. Consequently, in large economies money is essential. If, additionally, individual Clower constraints bind, loans and money are both essential.

Pages: 43 pages
Date: 1985
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Journal Article: Money and Loans (1989)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:643

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