In decentralized trade individuals self-insure against consumption risk via costly diversification of skills. Although money acts as consumption insurance, it may lead to a moral hazard problem. If the problem is severe, monetizing trade can lower welfare relative to barter.
Camera, G., R. Reed and C. Waller (2003). Can monetizing trade lower welfare? An example. Economics Letters 81(2), 33-40. doi: 10.1016/S0165-1765(03)00168-X
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NOTICE: this is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, volume 81, issue 2 (2003). DOI: 10.1016/S0165-1765(03)00168-X
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