Restricting the means of exchange within organizations

This paper considers why firms often ban monetary exchange between their em ployees, while encouraging these trades through other means, such as throug h the reciprocation of favours or barter. Despite classical inefficiencies associated with non-monetary exchange, we illustrate two themes as to why n on-monetary trade may be preferred to allowing money. First, the use of non -monetary trade may affect the allocation of rents in surplus-enhancing way s, as agents respond strategically to the existence of these rents. Second, non-monetary trade improves the ability of agents to impose sanctions on t hose who act dishonestly. (C) 1999 Elsevier Science B.V. All rights reserve d.