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http://ssrn.com/abstract=287848
 
 

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Barter, Liquidity and Market Segmentation


Canice Prendergast


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Lars Stole


University of Chicago - Booth School of Business

October 2001

CESifo Working Paper Series No. 586

Abstract:     
This paper explores the private and social benefits from barter exchange in a monetized economy. We first prove a no-trade theorem regarding the ability of firms with double-coincidences-of-wants to negotiate improvements in trade among themselves relative to the market outcomes. We then demonstrate that in the presence of liquidity shocks, introducing a non-monetary exchange avoids this limitation and enhances trade by (1) generating liquidity and (2) by segmenting the market place into low-demand and high-demand customers in a manner which is impossible with pure monetary exchange. We provide comparative statics illustrating the importance of each effect and relevant extensions.

Number of Pages in PDF File: 37

Keywords: Barter, Exchange

JEL Classification: C78, D82, L11

working papers series


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Date posted: November 13, 2001  

Suggested Citation

Prendergast, Canice and Stole, Lars, Barter, Liquidity and Market Segmentation (October 2001). CESifo Working Paper Series No. 586. Available at SSRN: http://ssrn.com/abstract=287848

Contact Information

Canice Prendergast
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Lars A. Stole (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)
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