Restricting the Means of Exchange within Organizations

Posted: 16 Feb 2014  

Lars Stole

University of Chicago - Booth School of Business

Canice Prendergast

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

Date Written: February 14, 2014

Abstract

This paper considers why firms often ban monetary exchange between their employees, while encouraging these trades through other means, such as through the reciprocation of favours or barter. Despite classical inefficiencies associated with non-monetary exchange, we illustrate two themes as to why non-monetary trade may be preferred to allowing money. First, the use of non-monetary trade may affect the allocation of rents in surplus-enhancing ways, as agents respond strategically to the existence of these rents. Second, non-monetary trade improves the ability of agents to impose sanctions on those who act dishonestly.

Keywords: Non-monetary exchange, Rent seeking, Surplus enhancing sanctions

JEL Classification: D21, L23

Suggested Citation

Stole, Lars and Prendergast, Canice, Restricting the Means of Exchange within Organizations (February 14, 2014). European Economic Review, Vol. 43, 1999. Available at SSRN: https://ssrn.com/abstract=2396183

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)

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

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