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Gift Exchange versus Monetary Exchange: Experimental Evidence

  • Daniela Puzzello

    (University of Illinois)

  • Brit Grosskpof

    (Texas A&M)

  • John Duffy

    (University of Pittsburgh)

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    This paper reports fiÂndings from an experiment that implements the Lagos-Wright(2005) model of monetary exchange. We find that subjects generally avoid the autarkic equilibrium of that model and make trading decisions consistent with the monetary equilibrium predictions of that model. Aliprantis, Camera and Puzzello (ACP, 2007) show that providing periodic access to centralized markets as in the Lagos and Wright framework may facilitate the sustainability of social norms of gift exchange, thus rendering money inessential in decentralized exchange. We also explore this hypothesis by replacing the centralized market of the Lagos-Wright model with a version of the centralized market of ACP's model. We find that the essentiality of money is not threatened by the presence of centralized meetings. Indeed, the e¢ ciency of allocations is signiÂcantly higher in the environment with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device.

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    File URL: https://www.economicdynamics.org/meetpapers/2011/paper_1153.pdf
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    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1153.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:1153
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. G. Camera & M. Casari, 2011. "The coordination value of monetary exchange: Experimental evidence," Working Papers wp754, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. D. Aliprantis, C. & Camera, G. & Puzzello, D., 2007. "Anonymous markets and monetary trading," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1905-1928, October.
    3. Charalambos D Aliprantis & Gabriele Camera & Daniela Puzzello, 2007. "Contagion Equilibria in a Monetary Model," Econometrica, Econometric Society, vol. 75(1), pages 277-282, 01.
    4. Gabriele Camera & Charles Noussair & Steven Tucker, 2003. "Rate-of-return dominance and efficiency in an experimental economy," Economic Theory, Springer, vol. 22(3), pages 629-660, October.
    5. Duffy, John & Ochs, Jack, 2009. "Cooperative behavior and the frequency of social interaction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 785-812, July.
    6. 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.
    7. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer, vol. 29(2), pages 415-432, October.
    8. Brown, Paul M., 1996. "Experimental evidence on money as a medium of exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 583-600, April.
    9. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
    10. Peng Lian & Charles R. Plott, 1998. "General equilibrium, markets, macroeconomics and money in a laboratory experimental environment," Economic Theory, Springer, vol. 12(1), pages 21-75.
    11. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
    12. John Duffy & Jack Ochs, 2002. "Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 637-674, August.
    13. Deck, Cary A. & McCabe, Kevin A. & Porter, David P., 2006. "Why stable fiat money hyperinflates: Results from an experimental economy," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 471-486, November.
    14. Araujo, Luis, 2004. "Social norms and money," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 241-256, March.
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