Is Money Essential? An Experimental Approach

Janet Hua Jiang, Peter Norman, Daniela Puzzello, Bruno Sultanum and Randall Wright

Journal of Political Economy, 2024, vol. 132, issue 9, 2972 - 2998

Abstract: Monetary exchange is called essential when better outcomes become incentive compatible when money is introduced. We study essentiality theoretically and experimentally using finite-horizon monetary models that are naturally suited to the lab. Following mechanism design, we also study the effects of strategy recommendations both when they are incentive compatible and when they are not. Results show that output and welfare are significantly enhanced by fiat currency if monetary equilibrium exists but not otherwise. Also, recommendations help if incentive compatible but not otherwise. Sometimes money gets used when it should not, and we investigate why, using surveys and measures of social preferences.

Date: 2024
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Working Paper: Is Money Essential? An Experimental Approach (2023)
Working Paper: Is Money Essential? An Experimental Approach (2021)
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