On the Efficiency of Monetary Exchange:How Divisibility of Money Matters

Aleksander Berentsen and Guillaume Rocheteau

No 101, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We use alternative assumptions about the divisibility of goods and money and the ability of agents to use lotteries on money to investigate to what extent the indivisibility of money is the cause for the typically inefficient production and consumption decisions in search-theoretic models of money. Our framework potentially generates three types of inefficiencies: the no-trade inefficiency, where no trade takes place even though it would be socially efficient to trade; and the too-much-trade and too-little-trade inefficiencies, where the quantities produced and exchanged are either larger or smaller than what the solution to a social planner�s problem would mandate. It is shown that while the no-trade and the too-much-trade inefficiencies are caused by the indivisibility of money, the too-little-trade ine .ciency remains even when money is divisible unless it is sufficiently valued.

Keywords: Money; Indivisibility; Search (search for similar items in EconPapers)
JEL-codes: D83 E00 E52 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/52001/1/iewwp101.pdf (application/pdf)

Related works:
Journal Article: On the efficiency of monetary exchange: how divisibility of money matters (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:101

Access Statistics for this paper

More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich
Bibliographic data for series maintained by Severin Oswald ().