The Coordination Value of Monetary Exchange: Experimental Evidence
Quaderni DSE Working Paper No. 754
51 Pages Posted: 11 Jun 2011
Date Written: June 7, 2011
Under what conditions can cooperation be sustained in a network of strangers? Here we study the role of institutions and uncover a new behavioral foundation for the use of monetary systems.
In an experiment, anonymous subjects could cooperate or defect in bilateral random encounters. This sequence of encounters was indefinite; hence multiple equilibria were possible, including full intertemporal cooperation supported by a social norm based on community punishment of defectors. We report that such social norm did not emerge. Instead, the availability of intrinsically worthless tokens favored the coordination on intertemporal cooperation in ways that networks of strangers were unable to achieve through social norms.
Keywords: money, cooperation, information, trust, folk theorem, repeated games
JEL Classification: C70, C90, D80
Suggested Citation: Suggested Citation