Accounting for debasements

indivisibility or imperfect recognizability of money

Research output: Contribution to journalArticleResearchpeer-review

Abstract

The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co-circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co-circulation of coins. (JEL D82, D83, E40, E42, N10).

Original languageEnglish
Number of pages12
JournalEconomic Inquiry
DOIs
Publication statusAccepted/In press - 2019

Cite this

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title = "Accounting for debasements: indivisibility or imperfect recognizability of money",
abstract = "The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co-circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co-circulation of coins. (JEL D82, D83, E40, E42, N10).",
author = "Ayushi Bajaj",
year = "2019",
doi = "10.1111/ecin.12822",
language = "English",
journal = "Economic Inquiry",
issn = "0095-2583",
publisher = "Wiley-Blackwell",

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Accounting for debasements : indivisibility or imperfect recognizability of money. / Bajaj, Ayushi.

In: Economic Inquiry, 2019.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Bajaj, Ayushi

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AB - The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co-circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co-circulation of coins. (JEL D82, D83, E40, E42, N10).

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