A Walrasian Theory of Commodity Money: Paradoxical Results.

This note analyses some implications of the model of commodity money described by Banerjee and Maskin (1996) which may seem paradoxical. In order to do this, a general production cost structure is incorporated into the model. Two different results are highlighted. First, the existence of technologies that make counterfeiting a commodity more difficult may exclude it from being used as a medium of exchange. Second, allocative distortions due to problems of asymmetric information may become larger in the presence of such technologies. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research