Abstract
This paper looks at the role of money as a medium of exchange in a competitive set-up. Together with this we have explored why, historically speaking, monetary trade and market specialization always go hand in hand. The set-up taken up for the purpose is derived from the well-known frame-work of Kiyotaki and Wright (1989). Our frame-work extends the above set-up to incorporate exchanges through trading posts for different pairs of goods. Here each agent is trying to choose his optimal strategy for trade given the best strategies of the others. The exercise reveals how a monetized trading post set-up can manifest itself through the agent’s optimizing behaviour.
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