We consider a model of decentralized exchange where individuals choose the set of goods they produce. Specialization involves producing a smaller set of goods and doing it more proÞciently. In doing so, agents reduce production costs, but also reduce the ease of trading their output. We derive the equilibrium degree of specialization and examine how it is affected by underlying fundamentals. Due to the existence of a hold-up problem, individuals specialize too little relative to the social optimum. Introducing money leads to more specialization relative to barter and increases welfare.
Camera, G., R. Reed & C. Waller (2003). Jack of all trades or master of one? Specialization, trade and money. International Economic Review 44(4), 1275-1294. doi: 10.1111/1468-2354.t01-1-00109
This is the accepted version of the following article:
Camera, G., R. Reed & C. Waller (2003). Jack of all trades or master of one? Specialization, trade and money. International Economic Review 44(4), 1275-1294
which has been published in final form at DOI: 10.1111/1468-2354.t01-1-00109.