TY - JOUR
T1 - On the efficiency of monetary exchange
T2 - How divisibility of money matters
AU - Berentsen, Aleksander
AU - Rocheteau, Guillaume
PY - 2002/11
Y1 - 2002/11
N2 - 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 inefficiency remains even when money is divisible unless it is sufficiently valued.
AB - 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 inefficiency remains even when money is divisible unless it is sufficiently valued.
KW - Indivisibility
KW - Money
KW - Search
UR - http://www.scopus.com/inward/record.url?scp=0036845117&partnerID=8YFLogxK
U2 - 10.1016/S0304-3932(02)00178-2
DO - 10.1016/S0304-3932(02)00178-2
M3 - Article
SN - 0304-3932
VL - 49
SP - 1621
EP - 1649
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 8
ER -