Endogenous Market Formation and Monetary Trade: an Experiment

Gabriele Camera, Dror Goldberg and Avi Weiss
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Dror Goldberg: The Open University of Israel

Working Papers from Chapman University, Economic Science Institute

Abstract: The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently emerges when subjects perform diversified economic tasks, but also when they interact in large groups. This shows that to understand the emergence of money it is important to amend the theory of money such that the market structure is endogenized.

Keywords: endogenous institutions; macroeconomic experiments; matching; coordination; markets; money (search for similar items in EconPapers)
JEL-codes: C9 C92 E4 E5 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-exp, nep-mac, nep-mon and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.chapman.edu/research-and-institutions/e ... dberg-weiss-2016.pdf

Related works:
Journal Article: Endogenous Market Formation and Monetary Trade: An Experiment (2020)
Working Paper: Endogenous Market Formation and Monetary Trade: an Experiment (2019)
Working Paper: Endogenous Market Formation and Monetary Trade: an Experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:16-19

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