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Working Paper

Counterfeiting as Private Money in Mechanism Design

We describe counterfeiting activity as the issuance of private money, one which is diffi cult to monitor. Our approach, which amends the basic random-matching model of money in mechanism design, allows a tractable welfare analysis of currency competition. We show that it is not efficient to eliminate counterfeiting activity completely. We do not appeal to lottery devices, and we argue that this is consistent with imperfect monitoring.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Rocheteau, Guillaume, and Ed Nosal. 2007. “Counterfeiting as Private Money in Mechanism Design.” Federal Reserve Bank of Cleveland, Working Paper No. 07-16.