Game-Theoretic Foundations of Monetary Equilibrium

SAFE Working Paper No. 32

34 Pages Posted: 3 Oct 2013

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Alessandro Gioffré

University of Florence - Department of Economics and Management; Goethe University Frankfurt - Research Center SAFE

Date Written: September 30, 2013

Abstract

Monetary theorists have advanced an intriguing notion: we exchange money to make up for a lack of enforcement, when it is difficult to monitor and sanction opportunistic behaviors. We demonstrate that, in fact, monetary equilibrium cannot generally be sustained when monitoring and punishment limitations preclude enforcement — external or not. Simply put, monetary systems cannot operate independently of institutions — formal or informal — designed to monitor behaviors and sanction undesirable ones. This fundamental result is derived by integrating monetary theory with the theory of repeated games, studying monetary equilibrium as the outcome of a matching game with private monitoring.

Keywords: Social norms, repeated games, cooperation, payment systems

JEL Classification: E4, E5, C7

Suggested Citation

Camera, Gabriele and Gioffré, Alessandro, Game-Theoretic Foundations of Monetary Equilibrium (September 30, 2013). SAFE Working Paper No. 32. Available at SSRN: https://ssrn.com/abstract=2334192 or http://dx.doi.org/10.2139/ssrn.2334192

Gabriele Camera

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Alessandro Gioffré (Contact Author)

University of Florence - Department of Economics and Management ( email )

Via delle Pandette, 9
Firenze, Florence 50127
Italy

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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