Money is an Experience Good: Competition and Trust in the Private Provision of Money

Ramon Marimon, Pedro Teles and Juan Pablo Nicolini

No 7418, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the interplay between competition and trust as efficiency-enhancing mechanims in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a lower bound on efficiency. Stationary inflation must be positive and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good. We show that the two problems, the time-inconsistency in the private provision of money and moral-hazard in the provision of experience goods, are isomorphic, and therefore the same results are attained in both settings.

Keywords: Currency competition; Experience goods; inflation; Trust (search for similar items in EconPapers)
JEL-codes: E40 E50 E58 E60 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mic and nep-mon
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Related works:
Journal Article: Money is an experience good: Competition and trust in the private provision of money (2012)
Working Paper: Money is an experience good: competition and trust in the private provision of money (2012)
Working Paper: Money is an Experience Good: Competition and Trust in the Private Provision of Money (2011)
Working Paper: Money is an experience good: competition and trust in the private provision of money (2011)
Working Paper: Money is an Experience Good: Competition and Trust in the Private Provision of Money (2009)
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