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Welfare economic foundation of hoarding loss by money circulation optimization

Miura, Shinji (2018): Welfare economic foundation of hoarding loss by money circulation optimization.

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Abstract

Saving brings an economic loss. This is one of the basic propositions of the under-consumption theory. This paper aims to give a welfare economic foundation of this proposition through an optimization method considering money circulation in the case where a type of saving is limited to hoarding. If price is fixed, a non-hoarding state is a necessary condition for Pareto efficiency. However, individual agents who prefer future expenditure hoard money, thus individual rational behavior brings about a Pareto inefficient state. This irrationality of rationality occurs because of a qualitative difference of the budget constraint between the whole society and an individual agent. The former’s constraint incorporates a truth that hoarding decreases other’s revenue, whereas the latter’s does not. Selfish individual agents make a decision with an ignorance of this relational truth because their interest is limited to their private range. As a result, agents fall into an irrational situation despite their rational judgment.

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