Economic Theory

, Volume 24, Issue 4, pp 887–906 | Cite as

The distribution of money and prices in an equilibrium with lotteries

  • Aleksander Berentsen
  • Gabriele Camera
  • Christopher Waller
Article

Summary.

We construct a tractable ‘fundamental’ model of money with equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible ‘tokens’ and can offer lotteries on monetary transfers. By studying a simple trading pattern, we can analytically characterize the monetary distribution. Interestingly, such distributions match those observed in numerically simulated economies with fully divisible money and price heterogeneity.

Keywords and Phrases:

Lotteries Money distribution Price dispersion Search. 

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Copyright information

© Springer-Verlag Berlin/Heidelberg 2004

Authors and Affiliations

  • Aleksander Berentsen
    • 1
  • Gabriele Camera
    • 2
  • Christopher Waller
    • 3
  1. 1.Economics DepartmentUniversity of BaselBaselSWITZERLAND
  2. 2.Department of Economics, Krannert School of ManagementPurdue UniversityWest LafayetteUSA
  3. 3.Department of Economics and EconometricsUniversity of Notre DameNotre DameUSA

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