An Economy with Personal Currency: Theory and Experimental Evidence

Martin Angerer, Juergen Huber, Martin Shubik and Shyam Sunder
Additional contact information
Martin Angerer: University of Innsbruck
Juergen Huber: University of Innsbruck

No 1622, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Is personal currency issued by participants sufficient to operate an economy efficiently, with no outside or government money? Sahi and Yao (1989) and Sorin (1996) constructed a strategic market game to prove that this is possible. We conduct an experimental game in which each agent issues her personal IOUs, and a costless efficient clearinghouse adjusts the exchange rates among them so the markets always clear. The results suggest that if the information system and clearing are so good as to preclude moral hazard, any form of information asymmetry, and need for trust, the economy operates efficiently at any price level without government money. These conditions cannot reasonably be expected to hold in natural settings. In a second set of treatments when agents have the option of not delivering on their promises, a high enough penalty for non-delivery is necessary to ensure an efficient market; a lower penalty leads to inefficient, even collapsing, markets due to moral hazard.

Keywords: Strategic market games; Government and individual money; Efficiency; Experimental gaming (search for similar items in EconPapers)
JEL-codes: C73 C91 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2007-08, Revised 2010-03
New Economics Papers: this item is included in nep-exp and nep-gth
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Citations: View citations in EconPapers (9)

Published in Annals of Finance (2010), 6(4): 475-509

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