Another Example of a Credit System that Coexists with Money
26 Pages Posted: 23 Dec 2014
Date Written: December 22, 2014
We study an economy in which exchange occurs pairwise, there is no commitment, and anonymous agents choose between random monetary trade or deterministic credit trade. To accomplish the latter, agents can exploit a costly technology that allows limited record-keeping and enforcement. An equilibrium with money and credit is shown to exist if the cost of using the technology is sufficiently small. Anonymity, record-keeping, and enforcement limitations also permit some incidence of default, in equilibrium.
Keywords: credit, default, money, search
JEL Classification: E40, E50, E51, G20
Suggested Citation: Suggested Citation