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Reconsidering Money: Monetary Exchange with Additive Transaction Costs

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  • Philipp J. H. Schroeder

Abstract

Under the assumption of purely additive transaction costs in exchange, the literature on money has a standard example of direct exchange dominating indirect (monetary) exchange. From here, it is frequently concluded that subadditive costs (e.g., search costs) must be examined in order to explain the institution or origin of money. In contrast, this paper presents an additive transaction costs model in which the mere absence of double coincidences of wants suffices to motivate monetary exchange. Furthermore, it is found that not all commodity monies that are collectively desirable qualify for the core, but that all fiat monies that are collectively desirable will be elements of the core.

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  • Philipp J. H. Schroeder, 2001. "Reconsidering Money: Monetary Exchange with Additive Transaction Costs," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(2), pages 301-318, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200106)157:2_301:rmmewa_2.0.tx_2-8
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    References listed on IDEAS

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    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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