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Equilibrium and Media of Exchange in a Convex Trading Post Economy with transaction Costs

  • Author(s): STARR, ROSS M
  • et al.
Abstract

General equilibrium is investigated with N commodities traded at N(N − 1)/2 commodity-pairwise trading posts. Bid and ask prices are quoted as commodity rates of exchange. Trade is a resource-using activity undertaken by firms recovering transaction costs through the spread between bid (wholesale) and ask (retail)prices. Budget constraints are enforced at each trading post separately;there is demand for a carrier of value between trading posts,commodity money. Existence of general equilibrium follows from convexity and continuity conditions and technical assumptions assuring boundedness of price ratios. Trade in media of exchange(commodity money) is the difference between gross and net trades.

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