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The Coordination Value of Monetary Exchange: Experimental Evidence

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  • Gabriele Camera
  • Marco Casari

Abstract

A new behavioral foundation is uncovered for why money promotes impersonal exchange. In an experiment, subjects could cooperate by intertemporally exchanging goods with anonymous opponents met at random. Indefinite repetition supported multiple equilibria, from full defection to the efficient outcome. Introducing the possibility to hold and exchange intrinsically worthless tickets affected outcomes and cooperation patterns. Tickets resembled fiat money, which emerged as a tool for equilibrium selection in the economy. Monetary exchange facilitated coordination on cooperation and redistributed surplus from defectors to cooperators. Treatments where subjects could develop a reputation revealed a limited record-keeping role for monetary exchange.

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Bibliographic Info

Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1239.

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Length: 45
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:pur:prukra:1239

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Keywords: money; cooperation; information; trust; folk theorem; repeated games;

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References

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Cited by:
  1. Daniela Puzzello & Brit Grosskpof & John Duffy, 2011. "Gift Exchange versus Monetary Exchange: Experimental Evidence," 2011 Meeting Papers, Society for Economic Dynamics 1153, Society for Economic Dynamics.
  2. John Duffy & Daniela Puzzello, 2014. "Gift Exchange versus Monetary Exchange: Theory and Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 104(6), pages 1735-76, June.

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