Journal Article

Money and Information

Aleksander Berentsen and Guillaume Rocheteau

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 4, pages 915-944
Published in print October 2004 | ISSN: 0034-6527
Published online October 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00309
Money and Information

More Like This

Show all results sharing these subjects:

  • Information, Knowledge, and Uncertainy
  • Money and Interest Rates
  • Market Structure and Pricing

GO

Show Summary Details

Preview

This paper investigates the role of money in markets in which producers have private information about the quality of the goods they supply. When the fraction of high-quality producers in the economy is given, money promotes the production of high-quality goods, which improves the quality mix and welfare unambiguously. When this fraction is endogenous, however, we find that money can decrease welfare relative to the barter equilibrium. The origin of this inefficiency is that money provides consumption insurance to low-quality producers, which can result in a higher fraction of low-quality producers in the monetary equilibrium. Finally, we find that most often agents acquire more costly information in the monetary equilibrium than in the barter equilibrium. Consequently, money is welfare-enhancing because it promotes useful production and exchange, but not because it saves information costs.

Keywords: D40; D82; D83; E40

Journal Article.  14720 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Money and Interest Rates ; Market Structure and Pricing

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.