Non-Monetary Exchange within Firms and Industry

29 Pages Posted: 9 Jul 1997  

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: September 1996

Abstract

This paper considers why non-monetary means of exchange, such as barter and the reciprocation of favors, are chosen by firms despite the usual benefits of monetary transactions. We consider the chosen means of exchange when both monetary and non-monetary exchange mechanisms are available. We illustrate three potential reasons for the emergence of non-monetary trade. First, a willingness to barter may reveal information that cannot be revealed solely through monetary trade. Second, non-monetary trade may constrain the ability of agents to engage in inefficient rent-seeking activities. Finally, non-monetary trade improves the ability of agents to impose trade sanctions on those who act dishonestly. We consider a number of applications of each of these ideas.

Suggested Citation

Prendergast, Canice and Stole, Lars, Non-Monetary Exchange within Firms and Industry (September 1996). NBER Working Paper No. w5765. Available at SSRN: https://ssrn.com/abstract=8627

Canice Prendergast (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)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Lars A. Stole

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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