Econometrica: Nov 1974, Volume 42, Issue 6

Money and the Decentralization of Exchange

https://doi.org/0012-9682(197411)42:6<1093:MATDOE>2.0.CO;2-Q
p. 1093-1114

Joseph M. Ostroy, Ross M. Starr

A pairwise trading process is formulated subject to conditions of non-negativity of traders' holdings, quid pro quo, and a limited number of trading opportunities. The following points are made: (i) there is a centralized procedure that achieves the equilibrium allocation for an arbitrary economy; (ii) it is not in general possible to find a decentralized procedure that achieves the equilibrium allocation for an arbitrary economy; and (iii) in a monetary economy there is a decentralized procedure that achieves the equilibrium allocation. The usefulness of money is that it allows decentralization of the trading process.

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