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A note on asymmetric and mixed strategy equilibria in the search-theoretic model of fiat money

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  • Randall Wright

    (Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, USA)

Abstract

The simple search-theoretic model of fiat money has three symmetric Nash equilibria: all agents accept money with probability 1; all agents accept money with probability 0; and all agents accept money with probability y in (0,1). Here I construct an asymmetric pure strategy equilibrium, payoff-equivalent to the symmetric mixed strategy equilibrium, where a fraction N in (0,1) of agents always accept money and 1-N never accept money. Counter to what has been conjectured previously, I find N > y. I also introduce evolutionary dynamics, and show that the economy converges to monetary exchange iff the initial proportion of agents accepting money exceeds N.

Suggested Citation

  • Randall Wright, 1999. "A note on asymmetric and mixed strategy equilibria in the search-theoretic model of fiat money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 463-471.
    • Handle: RePEc:spr:joecth:v:14:y:1999:i:2:p:463-471
    Note: Received: September 10, 1997; revised version: April 24, 1998
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    Cited by:

    1. Rietz, Justin, 2019. "Secondary currency acceptance: Experimental evidence with a dual currency search model," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 403-431.
    2. repec:hal:spmain:info:hdl:2441/669 is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/669 is not listed on IDEAS
    4. Marc Flandreau & Clemens Jobst, 2006. "The Empirics of International Currencies: Evidence from the 19th Century," Working Papers hal-01065631, HAL.
    5. Marc Flandreau & Clemens Jobst, 2009. "The Empirics of International Currencies: Network Externalities, History and Persistence," Economic Journal, Royal Economic Society, vol. 119(537), pages 643-664, April.
    6. Flandreau, Marc & Jobst, Clemens, 2006. "The Empirics of International Currencies: Historical Evidence," CEPR Discussion Papers 5529, C.E.P.R. Discussion Papers.
    7. repec:spo:wpmain:info:hdl:2441/669 is not listed on IDEAS
    8. repec:hal:wpspec:info:hdl:2441/669 is not listed on IDEAS

    More about this item

    Keywords

    Money Search · Nash equilibrium.;

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