Gift Exchange versus Monetary Exchange: Theory and Evidence

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.

[1]  Randall Wright,et al.  New Monetarist Economics: Models , 2010 .

[2]  Michihiro Kandori.  Social Norms and Community Enforcement , 1992 .

[3]  G. Camera,et al.  The Coordination Value of Monetary Exchange: Experimental Evidence , 2011 .

[4]  Kevin McCabe,et al.  Fiat money as a store of value in an experimental market , 1989 .

[5]  Alexander Matros,et al.  Competitive behavior in market games: Evidence and theory , 2011, J. Econ. Theory.

[6]  Li-Sha Huang,et al.  General Equilibrium , 2008, Encyclopedia of Algorithms.

[7]  B. Malinowski,et al.  Crime and Custom in Savage Society , 1927, Nature.

[8]  Ricardo Lagos,et al.  A Unified Framework for Monetary Theory and Policy Analysis , 2005 .

[9]  John Duffy,et al.  Cooperative behavior and the frequency of social interaction , 2009, Games Econ. Behav..

[10]  U. Fischbacher.  z-Tree: Zurich toolbox for ready-made economic experiments , 1999 .

[11]  Refractor.  Uncertainty , 2001, The Lancet.

[12]  Shouyong Shi,et al.  A Divisible Search Model of Fiat Money , 1997 .

[13]  Petra Kaufmann.  Crime And Custom In Savage Society , 2016 .

[14]  Charalambos D. Aliprantis,et al.  Matching and anonymity , 2006 .

[15]  C. Aliprantis,et al.  Contagion Equilibria in a Monetary Model , 2014 .

[16]  General equilibrium, markets, macroeconomics and money in a laboratory experimental environment , 1998 .

[17]  Cindy W Hamilton,et al.  On the table: form and function. , 2009, Chest.

[18]  A. Greif.  History Lessons The Birth of Impersonal Exchange: The Community Responsibility System and Impartial Justice , 2006 .

[19]  Gabriele Camera,et al.  Anonymous Markets and Monetary Trading , 2007 .

[20]  Luis Araujo.  Social Norms and Money , 2003 .

[21]  Paul M. Brown.  Experimental evidence on money as a medium of exchange , 1996 .

[22]  Walter E. Block,et al.  On the optimum quantity of money , 2004 .

[23]  Luis Araujo,et al.  The essentiality of money in environments with centralized trade , 2012 .

[24]  John Hicks,et al.  M. Friedman. The Optimum Quantity of Money , 1970 .

[25]  Ruilin Zhou,et al.  Money as a Mechanism in a Bewley Economy , 2002 .

[26]  J. Duffy,et al.  Emergence of money as a medium of exchange: An experimental study , 1999 .

[27]  Jonathan Chiu,et al.  Uncertainty, Inflation, and Welfare , 2011 .

[28]  M. Mauss.  The gift : Forms and functions of exchange in Archaic Societies / Marcel Mauss , 2020 .

[29]  N. Kiyotaki,et al.  Production and consumption , 2013 .

[30]  G. Camera,et al.  Rate-of-return dominance and efficiency in an experimental economy , 2002 .

[31]  L. Shapley,et al.  Trade Using One Commodity as a Means of Payment , 1977, Journal of Political Economy.

[32]  Glenn Ellison.  Cooperation in the Prisoner's Dilemma with Anonymous Random Matching , 1994 .

[33]  Charles A. Holt,et al.  Risk Aversion and Incentive Effects , 2002 .

[34]  A. Roth,et al.  Macroeconomics: A Survey of Laboratory Research , 2016 .

[35]  G. Mailath,et al.  Repeated Games and Reputations: Long-Run Relationships , 2006 .

[36]  John Duffy,et al.  Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence , 2002 .

[37]  D. Porter,et al.  Why stable fiat money hyperinflates: Results from an experimental economy , 2006 .