Search, bargaining, money, and prices under private information

This paper presents a model of money and search where bargaining determines prices and the quality of goods is private information. It studies how a l emons problem affects the purchasing power of money. There are multiple, Pa reto-ranked equilibria. The superior equilibrium, where no lemons are produ ced, exists even if information about quality is relatively scarce. In othe r equilibria, there is price dispersion, and uninformed buyers pay higher p rices than informed buyers for all goods. Taxing money balances (a proxy fo r inflation) makes buyers less selective, thus reducing the average quality of supply and the premium paid for known quality.