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This paper examines the relationship between specialization and the use of money in two versions of the search-theoretic monetary model. The first version establishes a surprising result that specialization is more likely to occur in a barter economy than in a monetary economy. The result is reversed in the second version where a different specification of preferences is adopted to limit the scope of barter. This contrast between the results provides a concrete illustration of the general argument that money encourages specialization only when it enlarges the extent of the market.
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Received: January 31, 1995; revised version August 12, 1996
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Shi, S. Money and specialization. Economic Theory 10, 99–133 (1997). https://doi.org/10.1007/s001990050148
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DOI: https://doi.org/10.1007/s001990050148