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An Analytical Model of Search and Bargaining with Divisible Money

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  • Kazuya Kamiya
  • So Kubota

Abstract

We propose a standard search and bargaining model with divisible money, in which only the random matching market opens and the generalized Nash bargaining settles each trade. Assuming fixed production costs, we analytically characterize a tractable equilibrium, called a pay-all equilibrium, and prove its existence. Each buyer pays all the money holding as a corner solution to the bargaining problem and each seller produces a positive amount of goods as an interior solution. The bargaining power parameter affects the distribution of the money holdings and possibly induces economic inefficiency. We propose a redistributional monetary transfer that adjusts the bargaining outcome and improves the allocation efficiency. Moreover, we analyze a temporary expansion of the money supply that increases social welfare through a redistribution.

Suggested Citation

  • Kazuya Kamiya & So Kubota, 2024. "An Analytical Model of Search and Bargaining with Divisible Money," TUPD Discussion Papers 53, Graduate School of Economics and Management, Tohoku University.
  • Handle: RePEc:toh:tupdaa:53
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    File URL: http://hdl.handle.net/10097/0002002518
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    References listed on IDEAS

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    1. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    2. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August.
    3. Kubota, So & 久保田, 荘, 2019. "Market Structure and Indeterminacy of Stationary Equilibria in a Decentralized Monetary Economy," Discussion paper series HIAS-E-84, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    4. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    5. Tai-Wei Hu & Guillaume Rocheteau, 2020. "Bargaining under liquidity constraints: Unified strategic foundations of the Nash and Kalai solutions," Post-Print hal-04120409, HAL.
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