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Gift Exchange versus Monetary Exchange: Theory and Evidence

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  • John Duffy
  • Daniela Puzzello

Abstract

We study the Lagos and Wright (2005) model of monetary exchange in the laboratory. With a finite population of sufficiently patient agents, this model has a unique monetary equilibrium and a continuum of non-monetary gift exchange equilibria, some of which Pareto dominate the monetary equilibrium. We find that subjects avoid the gift-exchange equilibria in favor of the monetary equilibrium. We also study versions of the model without money where all equilibria involve non-monetary gift-exchange. We find that welfare is higher in the model with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device.

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Bibliographic Info

Paper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 449.

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Date of creation: Nov 2011
Date of revision: Sep 2013
Handle: RePEc:pit:wpaper:449

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