The Coordination Value of Monetary Exchange: Experimental Evidence
American Economic Journals: Microeconomics (Forthcoming)
40 Pages Posted: 9 May 2013
Date Written: May 2013
What institutions can sustain cooperation in groups of strangers? Here we study the role of monetary systems. In an experiment, subjects sometimes needed help and sometimes could incur a cost to help an anonymous counterpart. In the absence of money, the intertemporal exchange of help, which could be supported by a norm of community punishment of defectors, did not emerge. Introducing intrinsically worthless tokens substantially altered patterns of behavior. Monetary trade emerged, which increased predictability of play and promoted cooperation when strangers could trade help for a token.
Keywords: cooperation, folk theorem, gift-giving, fiat money, repeated games
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