An Economy with Personal Currency: Theory and Experimental Evidence

44 Pages Posted: 24 Aug 2007 Last revised: 25 Mar 2010

See all articles by Martin Angerer

Martin Angerer

Hochschule Liechtenstein; University of Innsbruck

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2010

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

JEL Classification: C73, C91

Suggested Citation

Angerer, Martin and Huber, Juergen and Shubik, Martin and Sunder, Shyam, An Economy with Personal Currency: Theory and Experimental Evidence (March 24, 2010). Cowles Foundation Discussion Paper No. 1622; Yale Economics Department Working Paper No. 26. Available at SSRN: https://ssrn.com/abstract=1009531

Martin Angerer

Hochschule Liechtenstein ( email )

Fürst-Franz-Josef-Strasse
Vaduz, FL-9490
Liechtenstein

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Martin Shubik (Contact Author)

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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