The Value of Fiat Money with an Outside Bank: An Experimental Game
Martin Shubik and
Shyam Sunder ()
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Juergen Huber: University of Innsbruck
No 1675, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
Why people accept intrinsically worthless fiat money in exchange for real goods and services has been a longstanding question. There are many competing sufficient explanations that may confound each other in practice but can be individually tested in isolation experimentally. In this paper we examine a sufficient explanation of the value of fiat money through the existence of a debt instrument which allows consumption to be moved earlier in time. We present experimental evidence that the theoretical predictions about the behavior of such economies work reasonably well in a laboratory setting. The import of this finding for the theory of money is to show that the presence of a societal bank and default laws provide sufficient structure to support the use of fiat money, although many other institutions such as taxation provide alternatives.
Keywords: Experimental Gaming; Bank; Fiat money (search for similar items in EconPapers)
JEL-codes: C73 C91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
Date: 2008-09, Revised 2010-04
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Working Paper: The Value of Fiat Money with an Outside Bank: An Experimental Game (2009)
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