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The coordination value of monetary exchange: Experimental evidence

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  • G. Camera
  • M. Casari

Abstract

Under what conditions can cooperation be sustained in a network of strangers? Here we study the role of institutions and uncover a new behavioral foundation for the use of monetary systems. In an experiment, anonymous subjects could cooperate or defect in bilateral random encounters. This sequence of encounters was indefinite; hence multiple equilibria were possible, including full intertemporal cooperation supported by a social norm based on community punishment of defectors. We report that such social norm did not emerge. Instead, the availability of intrinsically worthless tokens favored the coordination on intertemporal cooperation in ways that networks of strangers were unable to achieve through social norms.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp754.

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Date of creation: May 2011
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Handle: RePEc:bol:bodewp:wp754

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  1. Ostroy, Joseph M. & Starr, Ross M., 1990. "The transactions role of money," Handbook of Monetary Economics, Elsevier, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 1, pages 3-62 Elsevier.
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  6. John Duffy & Jack Ochs, 2002. "Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 637-674, August.
  7. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 63-80, January.
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  14. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, Econometric Society, vol. 68(1), pages 119-134, January.
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Cited by:
  1. John Duffy & Daniela Puzzello, 2011. "Gift Exchange versus Monetary Exchange: Theory and Evidence," Working Papers, University of Pittsburgh, Department of Economics 449, University of Pittsburgh, Department of Economics, revised Sep 2013.
  2. Daniela Puzzello & Brit Grosskpof & John Duffy, 2011. "Gift Exchange versus Monetary Exchange: Experimental Evidence," 2011 Meeting Papers 1153, Society for Economic Dynamics.

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