Can Monetizing Trade Lower Welfare? An Example

13 Pages Posted: 21 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Robert R. Reed III

University of Kentucky - Gatton College of Business and Economics

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis; University of Notre Dame - Department of Economics

Date Written: May 1, 2003

Abstract

In decentralized trade individuals self-insure against consumption risk via costly diversification of skills. Although money acts as a consumption insurance, it may lead to a moral hazard problem. If the problem is severe, monetizing trade can lower welfare relative to barter.

Keywords: money, specialization, lotteries

JEL Classification: E4, E5

Suggested Citation

Camera, Gabriele and Reed, Robert and Waller, Christopher J., Can Monetizing Trade Lower Welfare? An Example (May 1, 2003). Economics Letters, Vol. 81, No. 2, 2003. Available at SSRN: https://ssrn.com/abstract=2540697

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Robert Reed

University of Kentucky - Gatton College of Business and Economics ( email )

Department of Economics
Lexington, KY 40506
United States

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

University of Notre Dame - Department of Economics ( email )

434 Flanner Hall
Notre Dame, IN 46556
United States
574-631-4963 (Phone)
574-631-9238 (Fax)

HOME PAGE: http://www.nd.edu/~cwaller/

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