Cheryl Cole and the liquidity paradox
This may be the first time I've linked to a story in The Sun , but it illustrates a striking economic puzzle, so here goes: "[Cheryl Cole] will not be fighting for a huge settlement. She just wants to get out fast so she can press on with life and move on. "The initial advice is that it speeds up the process if there is no claim for money"...Cheryl hopes to keep the couple's £6million home. So wait...this transaction will be more liquid with lower transaction costs if it takes place in property instead of cash? This goes against all standard microeconomic theory, which strongly implies that cash transactions should be more efficient than barter. Cash is a fungible asset, highly granular, and any transaction involving other assets will be an imperfect match for the agent's preferences, reducing the available consumer surplus. What could be the explanation for this? Cheryl could be rationally giving up a potential material gain simply to reduce likely ...