Endogenous Market Formation and Monetary Trade: an Experiment

Gabriele Camera, Dror Goldberg and Avi Weiss
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Dror Goldberg: The Open University of Israel

Working Papers from Chapman University, Economic Science Institute

Abstract: The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate islands can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. Theformerminimizetradecoststhroughmonetaryexchange; thelattermaximizesoverall surplus through non-monetary exchange. Monetary trade emerges when coordination is problematic, while centralized trade emerges otherwise. This shows that to understand the emergence of money it is important to amend standard theory such that the market structure is endogenized.

Keywords: endogenous institutions; macroeconomic experiments; matching; coordination; markets; money (search for similar items in EconPapers)
JEL-codes: C9 C92 E4 E5 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://digitalcommons.chapman.edu/esi_working_papers/261/

Related works:
Journal Article: Endogenous Market Formation and Monetary Trade: An Experiment (2020)
Working Paper: Endogenous Market Formation and Monetary Trade: an Experiment (2016)
Working Paper: Endogenous Market Formation and Monetary Trade: an Experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:19-04

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