Coincidence of wants

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The coincidence of wants problem (often "double coincidence of wants") is the situation where the supplier of good A wants good B and the supplier of good B wants good A^[1]

It is an important category of transaction costs that impose severe limitations on economies lacking a medium of exchange (such as money), which have to rely on barter or other in-kind transactions. The problem is caused by the improbability of the wants, needs, or events that cause or motivate a transaction occurring at the same time and the same place. One example is the bar musician who is "paid" with liquor or food, items which his landlord will not accept as rent payment, when the musician would rather have a month's shelter. If, instead, the musician's landlord were to throw a party and desire music for it, hiring the musician to play it by offering the month's rent in exchange, a coincidence of wants would exist.

In-kind transactions have several limitations, most notably timing constraints. If you wish to trade fruit for wheat, you can only do this when the fruit and wheat are both available at the same time and place (and, additionally, only if someone wishes to trade wheat for fruit). That may be a very brief time, or it may be never. With a medium of exchange you can sell your fruit when it is ripe and take the medium of exchange; then use that to buy wheat when it is harvested, without the need for a coincidence of wants.

Besides barter, other kinds of in-kind transactions also suffer from the coincidence of wants problem in the absence of a medium of exchange. For example, when wealth is transferred during marriage, divorce, inheritance, and other crucial life events, or during the collection of taxes or tribute, it is improbable that this event will coincide with the recipient's desire for the commodities the payer can readily obtain. All of these transactions require an improbable coincidence of wants and events.

William Stanley Jevons and Ross M. Starr use the term 'double coincidence of wants' for the same concept.^[2]

References

• W.S. Jevons (1875), Money and the Mechanism of Exchange, Chapter 1, paragraphs 5-6. London: Macmillan.
• Carl Menger, "On the Origin of Money"
• Nobuhiro Kiyotaki and Randall Wright (1989), 'On money as a medium of exchange', "Journal of Political Economy" 97, pp. 927–54.

1. ↑ Ostroy, Joseph M., and Ross M. Starr (1990), "The Transactions Role of Money", in the Handbook of Monetary Economics.
2. ↑ Ostroy, Joseph M., and Ross M. Starr (1990), "The Transactions Role of Money", in the Handbook of Monetary Economics.