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Coalition-proof trade and the friedman rule in the lagos-wright model

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)116-137
Number of pages22
JournalJournal of Political Economy
Volume117
Issue number1
DOIs
DatePublished - Feb 2009

Abstract

The Lagos-Wright model - a monetary model in which pairwise meetings alternate in time with a centralized meeting - has been extensively analyzed, but always using particular trading protocols. Here, trading protocols are replaced by two alternative notions of implementability: one that allows only individual defections and one that also allows cooperative defections in meetings. It is shown that the first-best allocation is implementable under the stricter notion without taxation if people are sufficiently patient. And, if people are free to skip the centralized meeting, then lump-sum taxation used to pay interest on money does not enlarge the set of implementable allocations.

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