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

Maria Bigoni (), Gabriele Camera () and Marco Casari
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Marco Casari: University of Bologna and IZA

Working Papers from Chapman University, Economic Science Institute

Abstract: We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an Òintertemporal cooperation gameÓ 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.

Keywords: Coordination; endogenous institutions; repeated games (search for similar items in EconPapers)
JEL-codes: C70 C90 D03 E02 E40 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth, nep-hpe and nep-mac
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https://digitalcommons.chapman.edu/esi_working_papers/243/

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Journal Article: Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:18-05

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