Gift Exchange versus Monetary Exchange: Theory and Evidence
John Duffy () and
Daniela Puzzello ()
American Economic Review, 2014, vol. 104, issue 6, 1735-76
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.
JEL-codes: C92 D12 E40 Z13 (search for similar items in EconPapers)
Note: DOI: 10.1257/aer.104.6.1735
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