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MONEY AND MIDDLEMEN IN AN ECONOMY WITH PRIVATE INFORMATION
Author(s) -
Li Yiting
Publication year - 1999
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1999.tb01412.x
Subject(s) - economics , private information retrieval , medium of exchange , welfare , consumption (sociology) , wright , private consumption , microeconomics , production (economics) , exchange economy , economy , monetary economics , market economy , commerce , currency , art , social science , statistics , mathematics , sociology , fiscal policy , art history
This paper extends the Williamson‐Wright model to study interaction between money and middlemen in an economy with qualitative uncertainty concerning the consumption goods. It is shown that with private information as the only trading friction, given that expert middlemen endogenously arise, people may still be willing to adopt indirect exchange involving money. Generally recognizable money improves welfare by promoting useful exchange and economizing on the cost of agents becoming middlemen. In an economy with trading frictions caused by private information and a double coincidence of wants problem, we show that there is room for both intermediary institutions. ( JEL E40, D82)