NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Non-Monetary Exchange Within Firms and Industry

Canice Prendergast, Lars A. Stole

NBER Working Paper No. 5765*
Issued in September 1996
NBER Program(s):   LS

This paper considers why non-monetary means of exchange, such as barter and the reciprocation of favors, are chosen by firms despite the usual benefits of monetary transactions. We consider the chosen means of exchange when both monetary and non-monetary exchange mechanisms are available. We illustrate three potential reasons for the emergence of non-monetary trade. First, a willingness to barter may reveal information that cannot be revealed solely through monetary trade. Second, non-monetary trade may constrain the ability of agents to engage in inefficient rent-seeking activities. Finally, non-monetary trade improves the ability of agents to impose trade sanctions on those who act dishonestly. We consider a number of applications of each of these ideas.

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