Corporate barter is a small but apparently thriving activity within the highly developed U.S. market economy. Among a hundred and thirty-nine Fortune-500 firms that responded substantively to a scholarly survey in 1995, about 25% of the firms stated that they engage in barter transactions. The National Association of Trade Exchanges (NATE), founded in 1984, provides a high-level institutional organization for barter. Among other activities, it provides an alternative form of money:
NATE members trade through The BANC (Barter Association National Currency), which provides a common and credible barter currency, allowing independent barter exchanges to do business with each other, without the need for back-to-back reciprocal trading.
Another association of barter organizations, the International Reciprocal Trade Association (IRTA), has been holding an annual barter conference since 1979. In 1988, the IRTA established another barter currency that it calls the Universal Currency. Commercial exchanges typically charge 8% to 15% of the transaction value. Thus barter has developed despite considerable direct transactions cost, as well as a much smaller set of possible transactions than those possible for dollars.
A common use of corporate barter in the U.S. is to dispose of assets that have lost much of their book value. One corporate barter firm explains:
the corporate-barter firm creates value by purchasing the asset at or close to its book value, allowing the company to recoup its investment in that asset. The premium the barter firm pays is generally two to three times its actual, fair-market value.
The company disposing of the asset in turn agrees to buy some good that the barter firm has accumulated. The counterpart good is usually a low-marginal-cost, perishable good. Media advertising time is a common counterpart good. Other counterpart goods include hotel stays, event tickets, and travel and transport capacity. Here’s what a barter firm describes as a good example of corporate barter:
A large brokerage house had a portfolio of margin accounts that were in arrears. We offered to buy the entire portfolio of obligations at book value, but only because we knew the brokerage house was able and willing to purchase sufficient advertising through us. In fact, we collected very few of the accounts in full but did a great job serving the broker’s advertising needs.
The market value of advertising, or other perishable goods, by definition doesn’t depend on to whom it’s sold. Thus tying the sale of these goods to purchasing devalued assets at full book value doesn’t make straight-forward economic sense.
Another common use of barter is to dispose of excess inventory. The key challenge in disposing of excess inventory is to segment markets so as not to undercut price in the primary market. One corporate barter firm notes:
A major key to a successful corporate barter transaction is the controlled sale of product. We protect our client’s existing sales distribution channels. We abide strictly by the remarketing and product disposal guidelines.
Barter is not necessary for controlled sale of product. Barter tends to obscure the cash price of goods traded. That, along with channel-protection commitments in a barter group and the transactions costs of joining a barter group, might help firms to separate barter transactions from corresponding sets of cash transactions. However, many other possibilities exist for for sellers to segment markets. Barter seems to be a rather expensive way for sellers to segment markets and price discriminate.
The best explanation for corporate barter seems to me that it gives managers a tool to diffuse an easy-to-measure loss on an asset across hard-to-monitor expenditures. Advertising is a common barter counterpart. The value of traditional advertising is quite difficult to measure. Rather than acknowledging in its accounts a loss on a particular asset, managers might trade that asset at its book value for advertising capacity that the corporation would not otherwise buy. Thus an easy-to-measure loss on an asset is transformed into extra expenditure on difficult-to-value advertising. Note that the counterpart party has no incentive to accept less than full cash compensation for goods that would be bought without the barter deal. Managers’ desire to transfer lost asset value to expenditure provides a credible reason for the firm to purchase perishable goods that the firm would not otherwise purchase.
Barter’s information economics provide important insights into the real world of advertising expenditure. Interactive digital advertising offers the possibility of much greater accountability in advertising expenditure. At least in some cases, increased accountability in advertising expenditure may not be in managers’ interests. Well-functioning financial markets, good accounting laws, and dedicated regulators make accountability in advertising expenditure more valuable in practice.
 See Damitio, James W., Schmidgall, Raymond S., and Kintzele, Philip. “Bartering activities of Fortune 500 companies.” National Public Accountant, March, 1995, available online at the Free Library.
 Commission estimate from Wikepedia entry for barter. The IRTA states that 400,000 IRTA-member companies world-wide, last year used barter “to utilize their Excess Business Capacities and underperforming assets, to earn an estimated $10 Billion dollars in previously lost and wasted revenues.”
 Corporate barter was a major element of the badly functioning Russian economy of the 1990s. Roughly 50% of Russian industrial sales in 1998 were barter transactions. Explanations for the vast scale of barter include liquidity constraints, implicit government subsidies, and managerial rent-seeking. Studies of Russian barter differ about the relative importance of these and other factors in causing barter. But studies agree that barter indicated significant economic problems in Russia’s transition from a totalitarian planned economy to a decentralized market economy. See, e.g. Simon Commander, Irina Dolinskaya, and Christian Mumssen, “Determinants of Barter in Russia: An Empirical Analysis,” IMF Working Paper WP/00/155, available online on SSRN.
 Unlike virtual currency transactions in virtual worlds, barter transactions are for U.S. tax purposes treated just like normal cash transactions. Hence, at least in the U.S. and at least for complying corporations, tax incentives do not drive barter.