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Social Norms and Monetary Trading

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  • Guilherme Carmona

Abstract

Random matching models have been used in Monetary Economics to argue that money can increase the well being of all agents in the economy. If the model features a finite number of agents it will be shown that there is an equilibrium, analogous to the contagious equilibria described in Kandori (1992), that Pareto dominates the monetary one. However it will be shown also that monetaty equilibria have two important advantages: firstly, they are more plausible in large economies in the sense that the lowest discount factor compatible with monetary equilibria doesn't depend on the population size, which is not the case with contagious equilibria; secondly, it is more stable to finite deviations in the following sense: no matter what the past has been, future play of the equilibrium strategies will give players the same payoff as if the equilibrium strategies were always followed.

Suggested Citation

  • Guilherme Carmona, 2004. "Social Norms and Monetary Trading," Macroeconomics 0402030, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0402030
    Note: Type of Document - pdf; prepared on winxp; to print on general; pages: 20; figures: 0. none
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0402/0402030.pdf
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    References listed on IDEAS

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    1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    2. Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-971, December.
    3. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    4. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 567-588.
    5. Dean Corbae & Ted Temzelides & Randall Wright, 2002. "Matching and Money," American Economic Review, American Economic Association, vol. 92(2), pages 67-71, May.
    6. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    7. Joao Gata, "undated". "Repeated Random Matching Games under Restricted Information. Part I: Equilibria," Discussion Papers 95/19, Department of Economics, University of York.
    8. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
    9. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 63-80.
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    Cited by:

    1. Guilherme Carmona, 2002. "Monetary trading: an optimal exchange system," Nova SBE Working Paper Series wp420, Universidade Nova de Lisboa, Nova School of Business and Economics.

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    More about this item

    Keywords

    Monetary trading; social norms;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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