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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.

Suggested Citation

  • John Duffy & Daniela Puzzello, 2014. "Gift Exchange versus Monetary Exchange: Theory and Evidence," American Economic Review, American Economic Association, vol. 104(6), pages 1735-1776, June.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:6:p:1735-76
    Note: DOI: 10.1257/aer.104.6.1735
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    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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