Efficient Online Exchange via Fiat Money

Jie Xu, Mihaela van der Schaar and William Zame
Additional contact information
Jie Xu: Electrictal Engineering, UCLA
Mihaela van der Schaar: Electrictal Engineering, UCLA

No 1315, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: In many online systems, individuals provide services for each other; the recipient of the service obtains a benefit but the provider of the service incurs a cost. If benefit exceeds cost, provision of the service increases social welfare and should therefore be encouraged but the individuals providing the service gain no (immediate) benefit from providing the service and hence have an incentive to withhold service. Hence there is scope for designing a protocol that improves welfare by encouraging exchange. To operate successfully within the confines of the online environment, such a protocol should be distributed, robust, and consistent with individual incentives. This paper proposes and analyzes protocols that rely solely on the exchange of fiat money or tokens. The analysis has much in common with work on search models of money but the requirements of the environment also lead to many differences from previous analyses - and some surprises; in particular, existence of equilibrium becomes a thorny problem and the optimal quantity of money is different.

Pages: 54 pages
Date: 2013, Revised 2013-05
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Efficient online exchange via fiat money (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1315

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