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Monetary trading: An Optimal Exchange System

  • Guilherme Carmona

    (Universidade Nova de Lisboa)

We show that monetary trading is simple, self-enforcing, symmetric, and irreducible in a natural framework. Furthermore, we show that the utility for each economic agent is at least as big under the monetary system as under any other simple, self-enforcing, symmetric, and irreducible trading system of the same complexity. Thus, we rationalize the monetary nature of real-world trade as being an efficient way to achieve those properties.

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Paper provided by EconWPA in its series Game Theory and Information with number 0309004.

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Length: 48 pages
Date of creation: 05 Sep 2003
Date of revision:
Handle: RePEc:wpa:wuwpga:0309004
Note: Type of Document - PDF; prepared on XP; to print on HP/PostScript/Franciscan monk; pages: 48 ; figures: included/request from author/draw your own
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  1. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  2. P. D., 1988. "Introduction," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(4), pages 527, July.
  3. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
  4. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  5. Humphrey, David B & Pulley, Lawrence B & Vesala, Jukka M, 1996. "Cash, Paper, and Electronic Payments: A Cross-Country Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 914-39, November.
  6. Joao Gata, . "Repeated Random Matching Games under Restricted Information. Part I: Equilibria," Discussion Papers 95/19, Department of Economics, University of York.
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  8. 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.
  9. Guilherme Carmona, 2004. "Social Norms and Monetary Trading," Macroeconomics 0402030, EconWPA.
  10. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  11. Mertens, Jean-Francois, 2002. "Stochastic games," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 47, pages 1809-1832 Elsevier.
  12. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  13. Ellison, Glenn, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 567-88, July.
  14. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  15. Mertens, J.-F. & Parthasarathy, T., 1987. "Equilibria for discounted stochastic games," CORE Discussion Papers 1987050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. David B. Humphrey & Lawrence B. Pulley & Jukka M. Vesala, 1996. "Cash, paper, and electronic payments: a cross-country analysis," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 914-941.
  17. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-20.
  18. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
  19. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
  20. Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-71, December.
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