Can monetizing trade lower welfare? An example
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Economics Letters, ISSN: 0165-1765, Vol: 81, Issue: 2, Page: 179-186
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- Economics, Econometrics and Finance; Money; Specialization; Lotteries; Economics
In decentralized trade individuals self-insure against consumption risk via costly diversification of skills. Although money acts as consumption insurance, it may lead to a moral hazard problem. If the problem is severe, monetizing trade can lower welfare relative to barter.