The Signalling Role of Municipal Currencies in Local Development

17 Pages Posted: 6 Dec 2005

See all articles by Rajshri Jayaraman

Rajshri Jayaraman

University of Munich and CESifo

Mandar P. OAK

Williams College - Department of Economics

Abstract

The last decade has seen the burgeoning of several hundred local community currency institutions in cities across the world. Although residents of these communities claim that local currency promotes local development, how it does so has hitherto been unexplored. We argue that the introduction of a municipal currency may serve as a signal of demand for local goods. Where demand uncertainty deters firms from investing in more productive technologies, such a signal improves the chances that technology choice will be optimal. The introduction of a local currency therefore always improves ex ante efficiency and may lead to ex post efficiency, with strictly higher levels of productivity and welfare.

Suggested Citation

Jayaraman, Rajshri and Oak, Mandar P., The Signalling Role of Municipal Currencies in Local Development. Economica, Vol. 72, No. 288, pp. 597-613, November 2005, Available at SSRN: https://ssrn.com/abstract=856664 or http://dx.doi.org/10.1111/j.1468-0335.2005.00434.x

Rajshri Jayaraman (Contact Author)

University of Munich and CESifo ( email )

Schackstr. 4
Munich, 80539
Germany

HOME PAGE: http://www.lrz-muenchen.de/~ces/raji.htm

Mandar P. Oak

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States
413-597-2300 (Phone)
413-597-4045 (Fax)

HOME PAGE: http://www.williams.edu/Economics/oak/cv.htm

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