Agents belong to different villages that are informationally separated. The frequency of meetings between any two different villages decreases in their respective geographic distance. The equilibrium mix of monetary and credit transactions i s characterized as a function of the frequency of meetings among agents from different villages. Our economy may be interpreted as a medieval economy. Trade takes place only among a small set of nearby villages via the use of credit.
Monetary trades emerge only after transactions with faraway villages become sufficiently frequent.
Even in that case, trades among nearby villages remain non-monetized. The University of Iowa, Henry B. Tippie College of Business. All rights reserved.