Can Monetizing Trade Lower Welfare? An Example
13 Pages Posted: 21 Dec 2014
Date Written: May 1, 2003
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: Suggested Citation