Money and loans

Research output: Contribution to journalArticlepeer-review

Abstract

Agents expect to trade with each other infinitely often, but face a temporal absence of a coincidence of wants when they meet. Only loans and/or money can facilitate exchange. In small close-knit economies, enduring trade relationships are valued and loans are optimal. In larger economies, with limited communication, information concerning repayment of loans diffuses too slowly to deter agents from reneging unless loans are severely restricted in magnitude. Money has no such redeemability problems, but if Clower constraints bind, loans help supplement money purchases so that both become essential. Roles of various institutions and the historical evolution of media of exchange are explained.

Original languageEnglish (US)
Pages (from-to)89-100
Number of pages12
JournalReview of Economic Studies
Volume56
Issue number1
DOIs
StatePublished - 1989
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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