Tuesday, September 02, 2008

Bartering is back

As it turns out, bartering is alive and well here in America. And this is bartering in the truest sense of the practice-- accountancy and home repairs for lodging.

What prevents bartering from persisting-- indeed, what drives market participants away from it-- is the steep transactions costs associated with the process. How long is it going to take me to find a trading partner who needs my pound of wheat and has my desired horseshoe? We're better off trading for a unit of common value that everyone agrees upon and, presto, money.

Craigslist, though, vastly reduces the transactions costs. Here is the bartering section for Pittsburgh; here is New York. Instead of walking the entire bazaar, you click around your area and see what's there. Obviously, this is driven by network effects, so as more people join the more valuable the service becomes to everyone. Of course, the transactions costs rise along with the number of people as well-- it takes you longer to search through the listings. Given the stability of the monetary system, it's hard to imagine this becoming more than a minute fraction of total transactions, but it's still intriguing nonetheless.

There was an interesting line in the story, though: "Historically, when times get tough, you see a 50 percent-plus increase in bartering..." I'd love to see some data on this one. Without a change in transactions costs, I find this hard to believe. Though it could be a statistics trick, too-- small increases in small numbers can yield large percent changes.


Justin M Ross said...

I can only imagine that during recession, your labor is more likely to be free and you can barter services because lower opportunity costs offset the transaction costs.

Still, you not only have to find a matching set of goods to barter, they also have to have agreeable quality levels.

Hazel said...

I clicked through to say that I'll happily spend time finding someone who wants my admin skills in return for some food only to find that Justin has done it for me!