Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75852
Authors: 
Prendergast, Canice
Stole, Lars
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper 586
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.
Subjects: 
barter
exchange
Document Type: 
Working Paper

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