MONEY AND STORAGE IN A DIFFERENTIAL INFORMATION ECONOMY

Is the use of fiat money essential in any efficient organization of ex change? We investigate this question in economies that are generalizat ions of the Townsend (1980) turnpike model that include limited commit ment and differential information. We show that in the Townsend turnpi ke model fiat money is not essential unless there is limited commitmen t. Furthermore, fiat money has no role whenever there is storage with positive returns. In the presence of differential information fiat mon ey is essential in overcoming incentive problems. This is the case eve n if there is storage with positive returns.