Working Paper: NBER ID: w13310
Authors: Taiwei Hu; John Kennan; Neil Wallace
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 with- out 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.
Keywords: matching model; coalition-proof; optima
JEL Codes: E40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| patience + ability to skip centralized meeting (O36) | first-best allocation implementability (D61) |
| lump-sum taxation (H29) | set of implementable allocations (D51) |
| trading protocol (F13) | welfare costs of inflation (D69) |
| inflation rates below a certain threshold (E31) | welfare costs of inflation (D69) |