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The Signalling Role of Municipal Currencies in Local Development
Author(s) -
Jayaraman Rajshri,
Oak Mandar
Publication year - 2005
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2005.00434.x
Subject(s) - local currency , currency , local development , productivity , economics , ex ante , welfare , business , monetary economics , market economy , economic growth , macroeconomics , regional science , geography
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.