Social norms and monetary trading

Guilherme Carmona

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: Random matching models have been used in Monetary Economics to argue that money can increase the well being of all agents in the economy. If the model features a finite number of agents it will be shown that there is an equilibrium, analogous to the contagious equilibria described in Kandori (1992), that Pareto dominates the monetary one. However it will be shown also that monetaty equilibria have two important advantages: firstly, they are more plausible in large economies in the sense that the lowest discount factor compatible with monetary equilibria doesnt depend on the population size, which is not the case with contagious equilibria; secondly, it is more stable to finite deviations in the following sense: no matter what the past has been, future play of the equilibrium strategies will give players the same payoff as if the equilibrium strategies were always followed.

Pages: 20 pages
Date: 2002
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Social Norms and Monetary Trading (2004)
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