Abstract

http://ssrn.com/abstract=1900080
 
 

References (35)



 
 

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Inefficient Provision of Liquidity


Oliver Hart


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Luigi Zingales


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)

August 1, 2011

Chicago Booth Research Paper No. 11-27

Abstract:     
We study an economy where the lack of a simultaneous double coincidence of wants creates the need for a relatively safe asset (money). We show that, even in the absence of asymmetric information or an agency problem, the private provision of liquidity is inefficient. The reason is that liquidity affects prices and the welfare of others, and creators do not internalize this. This distortion is present even if we introduce lending and government money. To eliminate the inefficiency the government must restrict the creation of liquidity by the private sector.

Number of Pages in PDF File: 39

Keywords: liquidity, money, banking

JEL Classification: E41 G21, E51

working papers series





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Date posted: August 1, 2011  

Suggested Citation

Hart , Oliver and Zingales, Luigi, Inefficient Provision of Liquidity (August 1, 2011). Chicago Booth Research Paper No. 11-27. Available at SSRN: http://ssrn.com/abstract=1900080 or http://dx.doi.org/10.2139/ssrn.1900080

Contact Information

Oliver D. Hart
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-3461 (Phone)
617-495-7730 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Luigi Zingales (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Chicago - Polsky Center for Entrepreneurship
Chicago, IL 60637
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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