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Open Access Publications from the University of California

Commodity Money Equilibrium in a Convex Trading Post Economy with Transaction Costs

  • Author(s): Starr, Ross M.
  • et al.

Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N commodities are traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints, enforced at each trading post separately, imply demand for a carrier of value between trading posts. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask price ratios. Commodity money flows are identified as the difference between gross and net inter-post trades.

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