Learning and Money Adoption

Michael Choi and Fan Liang

Journal of Political Economy, 2023, vol. 131, issue 7, 1772 - 1796

Abstract: We consider a dynamic monetary economy where agents gradually learn about the holding cost of a new asset and coordinate to adopt it as money or abandon it. We provide closed-form solutions for state-contingent asset prices and agents’ adoption decision. The transactional benefits of using money are endogenous and can convexify or concavify the payoff structure. Thus, the arrival of new information can raise or reduce the asset’s price, which is in sharp contrast to standard insights in experimentation models. Full disclosure of the asset type and an increase in the learning speed improve information but have different welfare implications.

Date: 2023
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