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Decentralizing constrained-efficient allocations in the Lagos–Wright pure currency economy

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  • Bajaj, Ayushi
  • Hu, Tai-Wei
  • Rocheteau, Guillaume
  • Silva, Mario Rafael

Abstract

This paper offers two ways to decentralize the constrained-efficient allocation of the Lagos–Wright (2005) pure currency economy. The first way has divisible money, take-it-or-leave-it offers by buyers, and a transfer scheme financed by money creation. If agents are sufficiently patient, the first best is achieved for finite money growth rates. If agents are impatient, the equilibrium allocation approaches the constrained-efficient allocation asymptotically as the money growth rate tends to infinity. The second way has indivisible money, take-it-or-leave-it offers by buyers, and no government intervention. We discuss the strict implementation of constrained-efficient allocations and the applicability of our scheme to economies with Lucas trees, endogenous participation, match-specific heterogeneity, and sequential competitive markets.

Suggested Citation

  • Bajaj, Ayushi & Hu, Tai-Wei & Rocheteau, Guillaume & Silva, Mario Rafael, 2017. "Decentralizing constrained-efficient allocations in the Lagos–Wright pure currency economy," Journal of Economic Theory, Elsevier, vol. 167(C), pages 1-13.
    • Handle: RePEc:eee:jetheo:v:167:y:2017:i:c:p:1-13
    DOI: 10.1016/j.jet.2016.09.011
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    References listed on IDEAS

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    Cited by:

    1. Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Russell, 2018. "A tractable model of monetary exchange with ex-post heterogeneity," Theoretical Economics, Econometric Society, vol. 13(3), September.
    2. Krishna, R. Vijay & Leukhina, Oksana, 2019. "On the benefits of currency reform," Journal of Economic Dynamics and Control, Elsevier, vol. 102(C), pages 81-95.
    3. Araujo, Luis & Hu, Tai-Wei, 2018. "Optimal monetary interventions in credit markets," Journal of Economic Theory, Elsevier, vol. 178(C), pages 455-487.
    4. Seon Tae Kim & Alessandro Marchesiani, 2024. "Market intelligence gathering, asymmetric information, and the instability of money demand," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1216-1245, July.
    5. Seon Tae Kim & Alessandro Marchesiani, 2020. "Market Intelligence Gathering and Money Demand," Working Papers 202004, University of Liverpool, Department of Economics.
    6. van Buggenum, Hugo & Rabinovich, Stanislav, 2023. "Co-essentiality of money and credit: A mechanism-design view," Journal of Economic Theory, Elsevier, vol. 213(C).

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    More about this item

    Keywords

    Money; Divisibility; Implementation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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