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Money and the Decentralization of Exchange

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  • Ostroy, Joseph M
  • Starr, Ross M

Abstract

A pairwise trading process is formulated subject to conditions of nonnegativity of traders' holdings and quid pro quo. It is shown that that: (i) There is a centralized procedure that achieves the equilibrium allocation for an arbitrary economy. (ii) It is not in general possible to find a decentralized procedure that achieves the equilibrium allocation for an arbitrary economy. (iii) In a monetary economy there is a decentralized procedure that achieves the equilibrium allocation. The usefulness of money is that it allows decentralization of the trading process.
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Suggested Citation

  • Ostroy, Joseph M & Starr, Ross M, 1974. "Money and the Decentralization of Exchange," Econometrica, Econometric Society, vol. 42(6), pages 1093-1113, November.
    • Handle: RePEc:ecm:emetrp:v:42:y:1974:i:6:p:1093-1113
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    References listed on IDEAS

    as
    1. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
    2. Ross M. Starr, 1972. "The Structure of Exchange in Barter and Monetary Economies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 86(2), pages 290-302.
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