Abstract
I examine the robustness of monetary equilibria
in a random-matching model, where a more efficient mechanism
for trade is available. Agents choose between two trading
sectors: the search and the intermediated sector. In the
former, trade partners arrive randomly and there is a
trading externality. In the latter, a costly matching
technology provides deterministic double-coincidence
matches. Multiple equilibria exist with the extent of costly
matching endogenously determined. Money and “mediated” trade
may coexist. This depends on the size of the probability of
a trade, relative to the cost of deterministic matching.
This outcome is inferior for an increasing-returns
externality. Under certain conditions, regimes with only
costly matching are welfare superior to monetary regimes
with random matching.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics
Cited by
19 articles.
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