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The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach

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  • Martin Shubik

Abstract

A game theoretic approach to the theory of money and financial institution is given utilizing both the strategic and coalitional forms for describing the economy. The economy is first modeled as a strategic market game, then the strategic form is used to calculate several cooperative forms that differ from each other in their utilization of money and credit and their treatment of threats. It is shown that there are natural upper and lower bounds to the monetary needs of an economy, but even in the extreme structures the concept of “enough money” can be defined usefully, and for large economies the games obtained from the lower and upper bounds have cores that approach the same limit that is an efficient price system. The role of disequilibrium is then discussed.

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Bibliographic Info

Article provided by IUP Publications in its journal The IUP Journal of Monetary Economics.

Volume (Year): V (2007)
Issue (Month): 2 (May)
Pages: 6-26

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Handle: RePEc:icf:icfjmo:v:05:y:2007:i:2:p:6-26

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  1. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
  2. Reinhard Selten, 1974. "Reexamination of the Perfectness Concept for Equilibrium Points in Extensive Games," Working Papers 023, Bielefeld University, Center for Mathematical Economics.
  3. Shubik, Martin, 1996. "Why equilibrium? A note on the noncooperative equilibria of some matrix games," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 537-539, May.
  4. Pradeep Dubey & Abraham Neyman, 1981. "Payoffs in Non-Atomic Economies: An Axiomatic Approach," Cowles Foundation Discussion Papers 610, Cowles Foundation for Research in Economics, Yale University.
  5. Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
  6. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  7. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  8. Dimitrios P. Tsomocos & Martin Shubik, 2002. "A strategic market game with seigniorage costs of Fiat money," Economic Theory, Springer, vol. 19(1), pages 187-201.
  9. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
  10. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  11. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
  12. Starr, Ross M, 1976. "Decentralized Nonmonetary Trade," Econometrica, Econometric Society, vol. 44(5), pages 1087-89, September.
  13. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
  14. Martin Shubik & Ludo Van der Heyden, 1977. "Logrolling and Budget Allocation Games," Cowles Foundation Discussion Papers 445, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Xiong, Siyang & Zheng, Charles Zhoucheng, 2008. "Interactive Blocking in Arrow-Debreu Economies," Staff General Research Papers 12882, Iowa State University, Department of Economics.

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