Barter, Liquidity and Market Segmentation

37 Pages Posted: 13 Nov 2001

See all articles by Canice Prendergast

Canice Prendergast

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

Lars Stole

University of Chicago - Booth School of Business

Date Written: October 2001

Abstract

This paper explores the private and social benefits from barter exchange in a monetized economy. We first prove a no-trade theorem regarding the ability of firms with double-coincidences-of-wants to negotiate improvements in trade among themselves relative to the market outcomes. We then demonstrate that in the presence of liquidity shocks, introducing a non-monetary exchange avoids this limitation and enhances trade by (1) generating liquidity and (2) by segmenting the market place into low-demand and high-demand customers in a manner which is impossible with pure monetary exchange. We provide comparative statics illustrating the importance of each effect and relevant extensions.

Keywords: Barter, Exchange

JEL Classification: C78, D82, L11

Suggested Citation

Prendergast, Canice and Stole, Lars A., Barter, Liquidity and Market Segmentation (October 2001). CESifo Working Paper Series No. 586. Available at SSRN: https://ssrn.com/abstract=287848

Canice Prendergast

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
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National Bureau of Economic Research (NBER)

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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)

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