Distributional Aspects of the Divisibility of Money: An Example

Abstract

I highlight the importance of the distributional aspects of money’s divisibility by comparing a search-theoretic model with random transfers of indivisible money balances, to one with deterministic transfers of partially divisible balances. Randomization allows price flexibility, as if money were fully divisible. Partial divisibility does not, but allows money redistributions. An example of the relevance of such ‘extensive margin’ aspects of divisibility is provided.

Keywords: Divisibility, Lotteries, Money distribution, Search

JEL Classification: D30, D83, E40