Trading Horizons and the Value of Money
21 Pages Posted: 23 Dec 2014
Date Written: December 22, 2014
This paper shows that fiat money can be feasible and essential even if the trading horizon is finite and deterministic. The result hinges on two features of our model. First, individual actions can affect the future availability of productive resources. So, agents may be willing to sell for money, even if on that date they have no reason to accept it. This makes monetary trade feasible in all preceding dates. Second, agents are anonymous and direct their search for partners. So, gift-giving arrangements may be prevented because agents can misrepresent their consumption needs. This makes money essential in exploiting any gains from specialization and trade.
Keywords: monetary exchange, finite horizon, limited enforcement, specialization
JEL Classification: C70, E40
Suggested Citation: Suggested Citation