Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model

Tai-wei Hu, John Kennan, Neil Wallace

NBER Working Paper No. 13310
Issued in August 2007
NBER Program(s):   EFG

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.

(311 K)

Published: Tai-wei Hu & John Kennan & Neil Wallace, 2009. "Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 116-137, 02.

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This paper was revised on October 6, 2008

Acknowledgments

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