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

  • Ramon Marimon
  • Juan Pablo Nicolini
  • Pedro Teles

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 bound on effciency. Stationary inflation must be non-negative 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.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/24.

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Date of creation: 2011
Date of revision:
Handle: RePEc:eui:euiwps:eco2011/24
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