Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model

26 Pages Posted: 10 Aug 2007 Last revised: 14 Nov 2022

See all articles by Tai-Wei Hu

Tai-Wei Hu

Northwestern University

John Kennan

University of Wisconsin; National Bureau of Economic Research (NBER)

Neil Wallace

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Date Written: August 2007

Abstract

The Lagos-Wright model -- a monetary model in which pairwise meetings alternate in time with a centralized meeting -- has been extensively analyzed, but always using particular trading protocols. Here, trading protocols are replaced by two alternative notions of implementability: one that allows only individual defections and one that also allows cooperative defections in meetings. It is shown that the first-best allocation is implementable under the stricter notion with- out taxation if people are sufficiently patient. And, if people are free to skip the centralized meeting, then lump-sum taxation used to pay interest on money does not enlarge the set of implementable allocations.

Suggested Citation

Hu, Tai-Wei and Kennan, John and Wallace, Neil, Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model (August 2007). NBER Working Paper No. w13310, Available at SSRN: https://ssrn.com/abstract=1005912

Tai-Wei Hu

Northwestern University ( email )

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John Kennan (Contact Author)

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Neil Wallace

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

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