Money as minimal complexity

Abstract: We consider mechanisms that provide traders the opportunity to exchange commodity

i

for commodity

j

, for certain ordered pairs

i j

. Given any connected graph

G

of opportunities, we show that there is a unique mechanism

M_{G}

that satisfies some natural conditions of "fairness" and "convenience". Let

m a t h f r a k M (m)

denote the class of mechanisms

M_{G}

obtained by varying

G

on the commodity set

l e f t 1, l d o t s, m i g h t

. We define the complexity of a mechanism

M

in

m a t h f r a k M (m)

to be a certain pair of integers

a u (M), p i (M)

which represent the time required to exchange

i

for

j

and the information needed to determine the exchange ratio (each in the worst case scenario, across all

i e q j

). This induces a quasiorder

p r e c e q

on

m a t h f r a k M (m)

by the rule [ Mpreceq M^{prime} ext{if} au(M)leq au(M^{prime}) ext{and}pi(M)leqpi(M^{prime}). ] We show that, for

m > 3

, there are precisely three

p r e c e q

-minimal mechanisms

M_{G}

in

m a t h f r a k M (m)

, where

G

corresponds to the star, cycle and complete graphs. The star mechanism has a distinguished commodity -- the money -- that serves as the sole medium of exchange and mediates trade between decentralized markets for the other commodities. Our main result is that, for any weights

l a m b d a, m u > 0,

the star mechanism is the unique minimizer of

l a m b d a a u (M) + m u p i (M)

on

m a t h f r a k M (m)

for large enough

m

.

Recommendations

Cites work

Cited in

(3)

This page was built for publication: Money as minimal complexity

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1651294)