Abstract We formulate a model of vertical differentiation to evaluate the welfare effects of removing a low quality product from the market. The mechanism through which a welfare improvement might arise is simple: Once the low quality low cost alternative is banned, entry into the high quality

Gift giving is thought to decrease welfare. Recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient’s preferences and in-kind gifts cannot be costlessly refunded. Such gifts are welfare reducing compared to giving cash if

constraints are binding at this node or at some future state of nature. Thus, binding debt constraints always induce frictions which create room for improving welfare by allowing money to have a role in transferring wealth across the event tree.

In this paper I examine whether a society can improve welfare by imposing a legal restric-tion to forbid the use of nominal bonds as a means of payments for goods. To do so, I integrate a microfounded model of money with the framework of limited participation. While the asset market is Walrasian

increase wel-fare, as long as agents play (potentially complex) equilibrium strategies. Given the strategic limitations of real-world participants, we carefully design a new al-gorithm that focalizes simple strategies. We test our design experimentally and show that it achieves welfare improvements over

important than conservatism-coordination in terms of avoiding medium-run imbalances due to a tug-of-war between the policies. Interestingly, the former is, under some circumstances, welfare improving even if the policymakers objectives are idiosyncratic and their coordinated output targets differ from

the elasticity, the higher the welfare gains turn out to be in the ex-post merger situation JEL classification: D4; L40; L96.

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