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The Coordination Value of Monetary Exchange: Experimental Evidence

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  • Gabriele Camera
  • Marco Casari

Abstract

A new behavioral foundation is uncovered for why money promotes impersonal exchange. In an experiment, subjects could cooperate by intertemporally exchanging goods with anonymous opponents met at random. Indefinite repetition supported multiple equilibria, from full defection to the efficient outcome. Introducing the possibility to hold and exchange intrinsically worthless tickets affected outcomes and cooperation patterns. Tickets resembled fiat money, which emerged as a tool for equilibrium selection in the economy. Monetary exchange facilitated coordination on cooperation and redistributed surplus from defectors to cooperators. Treatments where subjects could develop a reputation revealed a limited record-keeping role for monetary exchange.

Suggested Citation

  • Gabriele Camera & Marco Casari, 2010. "The Coordination Value of Monetary Exchange: Experimental Evidence," Purdue University Economics Working Papers 1239, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1239
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    More about this item

    Keywords

    money; cooperation; information; trust; folk theorem; repeated games;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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