Report
Barter and monetary exchange under private information
Abstract: We analyze economies with private information concerning the quality of commodities. Without private information there is a nonmonetary equilibrium with only high quality commodities produced, and money cannot improve welfare. With private information there can be equilibria with bad quality commodities produced, and sometimes only nonmonetary equilibrium is degenerate. The use of money can lead to active (i.e., nondegenerate) equilibria when no active nonmonetary equilibrium exists. Even when active nonmonetary equilibria exist, with private information money can increase welfare via its incentive effects: in monetary equilibrium, agents may adopt trading strategies that discourage production of low quality output.
Keywords: Money theory;
Access Documents
File(s): File format is application/pdf http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=422
Bibliographic Information
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Staff Report
Publication Date: 1991
Number: 141