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This paper attempts to explain one version of an empirical puzzle noted by Mankiw (2003): a Baumol-Tobin inventory-theoretic money demand equation predicts that the average U.S. adult should have held approximately $551.05 in currency and coin in 1995, while data show an average of $100. The models in this paper help explain this discrepancy using two assumptions: the probabilities of being robbed or pick-pocketed, or having a purse snatched, depend on the amount of cash held; and there are costs of being robbed other than loss of cash, such as injury, medical bills, lost time at work, and trauma.
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