Indivisibilities, Lotteries, and Monetary Exchange

Aleksander Berentsen, Miguel Molico, Randall Wright
2002 Journal of Economic Theory  
We introduce lotteries (randomized trading) into search-theoretic models of money. In a model with indivisible goods and fiat money, we show goods trade with probability 1 and money trades with probability {, where {<1 iff buyers have sufficient bargaining power. With divisible goods, a nonrandom quantity q trades with probability 1 and, again, money trades with probability { where {<1 iff buyers have sufficient bargaining power. Moreover, q never exceeds the efficient quantity (not true
more » ... lotteries). We consider several extensions designed to get commodities as well as money to trade with probability less than 1, and to illuminate the efficiency role of lotteries. Journal of Economic Literature Classification Numbers: E40, D83. 2002 Elsevier Science (USA)
doi:10.1006/jeth.2000.2689 fatcat:akqsboqdkzebpfjsx3dmriutje