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Non-Monetary Exchange Within Firms and Industry

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  • Canice Prendergast
  • Lars A. Stole

Abstract

This paper considers why non-monetary means of exchange, such as barter and the reciprocation of favors, are chosen by firms despite the usual benefits of monetary transactions. We consider the chosen means of exchange when both monetary and non-monetary exchange mechanisms are available. We illustrate three potential reasons for the emergence of non-monetary trade. First, a willingness to barter may reveal information that cannot be revealed solely through monetary trade. Second, non-monetary trade may constrain the ability of agents to engage in inefficient rent-seeking activities. Finally, non-monetary trade improves the ability of agents to impose trade sanctions on those who act dishonestly. We consider a number of applications of each of these ideas.

Suggested Citation

  • Canice Prendergast & Lars A. Stole, 1996. "Non-Monetary Exchange Within Firms and Industry," NBER Working Papers 5765, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5765
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    References listed on IDEAS

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    1. Hennart, Jean-Francois, 1989. "The Transaction-Cost Rationale for Countertrade," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 127-153, Spring.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Williamson, Oliver E, 1984. "Credible Commitments: Further Remarks," American Economic Review, American Economic Association, vol. 74(3), pages 488-490, June.
    4. Schmidt, Klaus M. & Schnitzer, Monika, 1995. "The interaction of explicit and implicit contracts," Economics Letters, Elsevier, vol. 48(2), pages 193-199, May.
    5. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-739, September.
    6. Stigler, George J, 1992. "Law or Economics?," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 455-468, October.
    7. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
    8. Hennart, Jean-Francois & Anderson, Erin, 1993. "Countertrade and the Minimization of Transaction Costs: An Empirical Examination," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 290-313, October.
    9. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
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    Citations

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    Cited by:

    1. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    2. Rajshri Jayaraman & Mandar Oak, 2005. "The Signalling Role of Municipal Currencies in Local Development," Economica, London School of Economics and Political Science, vol. 72(288), pages 597-613, November.
    3. Patrick Herbst & Eric Jahn, 2017. "IP-for-IP or Cash-for-IP? R&D Competition and the Market for Technology," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 75-101, August.
    4. Richard B. Goud Jr., 2002. "Inter-Firm Non-Monetary Transactions in Russia: A Literature Review," Development and Comp Systems 0207001, University Library of Munich, Germany.
    5. Ellingsen, Tore, 1998. "Payments in Kind," SSE/EFI Working Paper Series in Economics and Finance 244, Stockholm School of Economics, revised 10 Feb 2000.
    6. Brana, S. & Maurel, M., 1999. "Barter in Russia : Liquidity Shortage Versus Lack of Restructuring," Papiers d'Economie Mathématique et Applications 1999.98, Université Panthéon-Sorbonne (Paris 1).
    7. Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
    8. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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