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Money is an Experience Good: Competition and Trust in the Private Provision of Money

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  • Marimon, Ramon
  • Nicolini, Juan Pablo
  • Teles, Pedro

Abstract

We study the interplay between competition and trust as efficiency-enhancing mechanims in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a lower bound on efficiency. Stationary inflation must be positive and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good. We show that the two problems, the time-inconsistency in the private provision of money and moral-hazard in the provision of experience goods, are isomorphic, and therefore the same results are attained in both settings.

Suggested Citation

  • Marimon, Ramon & Nicolini, Juan Pablo & Teles, Pedro, 2009. "Money is an Experience Good: Competition and Trust in the Private Provision of Money," CEPR Discussion Papers 7418, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7418
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    References listed on IDEAS

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    Cited by:

    1. Matteo Maggiori & Emmanuel Farhi, 2015. "A Model of the International Monetary System," Working Paper 349586, Harvard University OpenScholar.
    2. Dwyer, Gerald P, 2014. "The Economics of Private Digital Currency," MPRA Paper 55824, University Library of Munich, Germany.
    3. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    4. Waknis, Parag, 2017. "Competitive Supply of Money in a New Monetarist Model," MPRA Paper 75401, University Library of Munich, Germany.

    More about this item

    Keywords

    Currency competition; Experience goods; Inflation; Trust;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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