Endogenous heterogeneity

This paper studies a Lagos and Wright economy with endogenous heterogeneity. In particular, the distribution of impatience (denoted by beta ) across agents converges pointwise to a degenerate distribution, the persistence of a delta-measure of agents with higher impatience, for some delta > 0, notwithstanding. As a consequence, a non zero measure set of agents holding idle money balances exists in the absence of any randomness nor ex post heterogeneity. Hence, examples of LW economies where the efficiency of equilibrium allocations is improved by letting agents hold interest bearing assets are robust. The results also show that coexistence of money with bonds is not ruled out by pointwise convergence of the distribution of money over the set of agents to a constant function. More exactly, the distribution of money may converge pointwise but not uniformly.