Young children use commodities as an indirect medium of exchange

Barter and commodity markets have been ubiquitous throughout history, suggesting that humans are good at exploiting profitable exchange opportunities. This paper studies our ability to trade through a developmental approach. We present a market experiment involving children who have not yet fully developed trading habits and are relatively unfamiliar with the concept of money. Namely, we ask 117 children aged 5 to 8 to trade in situations in which efficient market outcomes can either be achieved through simple barter or else necessitate the endogenous emergence of commodity money (trade requires transitory bookkeeping losses). We find that equilibrium outcomes are frequent (74% to 82% of subgroups depending on the treatment). Pareto efficient equilibrium outcomes occur in 82% of barter economies and 53% of commodity markets. Finally, 47% of children always trade efficiently. The results indicate that many young children can engage in profitable market exchanges.