Markeless Set-Up vs Trading Posts : A Comparative Analysis

This paper studies the efficiency properties with respect to transactions cost, of a trading post set-up vis-à-vis a marketless trading arrangement under the well-known frame-work of Ostroy and Starr [1974]. It is revealed from this exercise that the social institute of money works better when coupled with the social institution of markets and further shows the extent of inefficiency that can be potentially associated with marketless trade in large economies. This gives some insight into why, historically speaking, a market set-up has evolved over time replacing a marketless set-up.