Economic Theory

, Volume 53, Issue 1, pp 111–138 | Cite as

Imperfect recognizability and coexistence of money and higher-return assets

Research Article


Existing solutions to the problem of coexistence of money and higher-return substitutes that rely on imperfect recognizability of the substitutes adopt extreme assumptions: they either have a zero cost of counterfeiting the substitutes or omit plausible refinements that would rule out pooling equilibria. Here coexistence is obtained with a general distribution of positive counterfeiting costs within a signaling-game framework in which the intuitive criterion is invoked. Moreover, if the cost of counterfeiting is small, then any monetary equilibrium that satisfies the intuitive criterion necessarily exhibits coexistence. A continuity assumption on off-equilibrium beliefs is also considered. It is satisfied by equilibria with small use of substitutes, but not by cash-in-advance equilibria.


Counterfeiting Cash-in-advance Monetary system Signaling games 

JEL Classification

E40 E42 


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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Kellogg School of ManagementNorthwestern UniversityEvanstonUSA

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