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On the Micro-foundations of Money: The Capitol Hill Baby-Sitting Co-op

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Author Info
Thorsten Hens
Klaus Reiner Schenk-Hoppé
Bodo Vogt

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Abstract

We suggest a new micro-foundation of money in which markets are well-organized but consumers' preferences are stochastic. In this model, we solve for stationary equilibria and show that there is an optimum quantity of money. The rational solution of our model is compared with actual behavior in a laboratory experiment. It turns out that the experiment gives support to our theoretical results.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp108.

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Handle: RePEc:zur:iewwpx:108

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Related research
Keywords: micro foundations of money; optimal quantity of money;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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  1. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine. [Downloadable!]
  2. Boldrin, Michele & Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A dynamic equilibrium model of search, production, and exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 723-758. [Downloadable!] (restricted)
  3. John Duffy & Jack Ochs, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. McCabe, Kevin A., 1989. "Fiat money as a store of value in an experimental market," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 215-231, October. [Downloadable!] (restricted)
  6. Berentsen, Aleksander, 2000. "Money Inventories in Search Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 168-78, May.
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  7. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February. [Downloadable!] (restricted)
  8. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990. "The optimum quantity of money revisited," Working Papers 404, Federal Reserve Bank of Minneapolis. [Downloadable!]
  9. 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. [Downloadable!] (restricted)
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