Restricting the means of exchange within organizations

Abstract

This paper considers why firms often ban monetary exchange between their employees, while encouraging these trades through other means, such as through the reciprocation of favours or barter. Despite classical inefficiencies associated with non-monetary exchange, we illustrate two themes as to why non-monetary trade may be preferred to allowing money. First, the use of non-monetary trade may affect the allocation of rents in surplus-enhancing ways, as agents respond strategically to the existence of these rents. Second, non-monetary trade improves the ability of agents to impose sanctions on those who act dishonestly.