Ed Nosal and Guillaume Rocheteau
- Published in print:
- 2011
- Published Online:
- August 2013
- ISBN:
- 9780262016285
- eISBN:
- 9780262298285
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262016285.003.0003
- Subject:
- Economics and Finance, Econometrics
Building on the previous chapter’s presentation of credit arrangements that allow intertemporal gains from trade to be exploited by agents, this chapter studies agents under an environment of ...
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Building on the previous chapter’s presentation of credit arrangements that allow intertemporal gains from trade to be exploited by agents, this chapter studies agents under an environment of distrust. Assuming that buyers and sellers have no trust for one another due to the lack of commitment in repaying their debts, trade by credit may not be incentive feasible. If ever trade were to occur, agents would need a kind of tangible medium of exchange. The chapter demonstrates that money is essential in an environment where agents cannot commit and there is no record-keeping technology. The role of money is the record-keeping technology itself.Less
Building on the previous chapter’s presentation of credit arrangements that allow intertemporal gains from trade to be exploited by agents, this chapter studies agents under an environment of distrust. Assuming that buyers and sellers have no trust for one another due to the lack of commitment in repaying their debts, trade by credit may not be incentive feasible. If ever trade were to occur, agents would need a kind of tangible medium of exchange. The chapter demonstrates that money is essential in an environment where agents cannot commit and there is no record-keeping technology. The role of money is the record-keeping technology itself.
