Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction

Maria Bigoni, Gabriele Camera and Marco Casari

American Economic Journal: Microeconomics, 2019, vol. 11, issue 2, 195-227

Abstract: We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an "intertemporal cooperation game" either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.

JEL-codes: C71 C73 E42 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mic.20170280
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Working Paper: Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction (2018)
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