TY - JOUR
T1 - Asymmetry, imperfectly transferable utility, and the role of fiat money in improving terms of trade
AU - Engineer, Merwan
AU - Shi, Shouyong
N1 - Funding Information:
We would like to thank Dan Bernhardt,K en Burdett, Nobuhiro Kiyotaki, Asha SadanandA, lbertoTrejos, Randy Wright, and seminarp articipantsa t the Canadian EconomicsT heory Meetings, Canadian Economics Macro Study Group, Delhi School of Economics,E conometricaS ocietyM eetingsi n Iowa City 1996,I ndian StatisticalI nstitute( Delhi),S ocietyf or EconomicD ynamics and Control Meetingsin Mexico City 1996,U niversityo f Alberta, Universityo f British Columbia,S UNY at Buffalo, Universityo f Guelph, Universityo f Pen-nsylvaniaa nd Simon Fraser University for their valuable commentso n an earlier versiono f this papere ntitled,'B argaining-InduceTdr ansactionD emand for Fiat Money'. We also thank the editor and the refereef or numerousu seful suggestionsT.h e usual disclaimera pplies.W e are gratefult o the Indian Statistical Institute and the University of Pennsylvaniaf or providing stimulating researche nvironmentsa nd to the Social Sciencesa nd HumanitiesR esearch Council of Canada for financial support.
PY - 1998/2
Y1 - 1998/2
N2 - We modify the Kiyotaki and Wright (1991, J. Economic Theory 53, 215-235; 1993, Amer. Econom. Rev. 83, 63-77) framework so that there is a universal double coincidence of wants in all barter matches. We also introduce divisible service sidepayments into the model and allow agents to bargain over bundles of goods, services and money in bilateral matches. In asymmetric matches, the agent that values the other's good more dearly will typically have to make a substantial service sidepayment to complete the bargain. When sidepayments transfer utility imperfectly, the general equilibrium is inefficient. Agents barter too much. When barter is inefficient, a robust monetary equilibrium may exist which improves welfare. Both robust monetary equilibria and welfare-improving monetary equilibria require asymmetric matches, imperfectly transferable utility, and monetary exchange yields better expected terms of trade than barter. In contrast to other search models, money does not speed up trade. (C) 1998 Elsevier Science B.V. All rights reserved.
AB - We modify the Kiyotaki and Wright (1991, J. Economic Theory 53, 215-235; 1993, Amer. Econom. Rev. 83, 63-77) framework so that there is a universal double coincidence of wants in all barter matches. We also introduce divisible service sidepayments into the model and allow agents to bargain over bundles of goods, services and money in bilateral matches. In asymmetric matches, the agent that values the other's good more dearly will typically have to make a substantial service sidepayment to complete the bargain. When sidepayments transfer utility imperfectly, the general equilibrium is inefficient. Agents barter too much. When barter is inefficient, a robust monetary equilibrium may exist which improves welfare. Both robust monetary equilibria and welfare-improving monetary equilibria require asymmetric matches, imperfectly transferable utility, and monetary exchange yields better expected terms of trade than barter. In contrast to other search models, money does not speed up trade. (C) 1998 Elsevier Science B.V. All rights reserved.
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U2 - 10.1016/S0304-3932(97)00064-0
DO - 10.1016/S0304-3932(97)00064-0
M3 - Article
AN - SCOPUS:0031993510
SN - 0304-3932
VL - 41
SP - 153
EP - 183
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 1
ER -