Gift Exchange versus Monetary Exchange: Experimental Evidence

Daniela Puzzello, Brit Grosskpof and John Duffy
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Daniela Puzzello: University of Illinois
Brit Grosskpof: Texas A&M
John Duffy: University of Pittsburgh

No 1153, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper reports fiÂndings from an experiment that implements the Lagos-Wright(2005) model of monetary exchange. We find that subjects generally avoid the autarkic equilibrium of that model and make trading decisions consistent with the monetary equilibrium predictions of that model. Aliprantis, Camera and Puzzello (ACP, 2007) show that providing periodic access to centralized markets as in the Lagos and Wright framework may facilitate the sustainability of social norms of gift exchange, thus rendering money inessential in decentralized exchange. We also explore this hypothesis by replacing the centralized market of the Lagos-Wright model with a version of the centralized market of ACP's model. We find that the essentiality of money is not threatened by the presence of centralized meetings. Indeed, the e¢ ciency of allocations is signiÂcantly higher in the environment with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device.

Date: 2011
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