Endogenous Currency Formation in an Online Environment: The Case of Diablo II

Review of Austrian Economics 29(1) 2016: 53-66

22 Pages Posted: 8 Dec 2013 Last revised: 2 Mar 2016

See all articles by Alexander William Salter

Alexander William Salter

Texas Tech University - Rawls College of Business; American Institute for Economic Research

Solomon M. Stein

George Mason University

Date Written: September 1, 2014

Abstract

This paper presents a case study of the emergence of currency from a barter economy. We use this case study to attempt to shed light on the relative importance of various types of frictions that lead to the emergence of money in search-theoretic models of currency formation. In particular, our study highlights the importance of exchange frictions relative to epistemic frictions. Using the records of an online message board dedicated to facilitating trades within the game, we document the emergence of currency and its stability over time.

Keywords: Exchange frictions, epistemic frictions, Kiyotaki-Wright, medium of exchange, Menger, money emergence, online societies

JEL Classification: E40, E42, E49

Suggested Citation

Salter, Alexander William and Stein, Solomon M., Endogenous Currency Formation in an Online Environment: The Case of Diablo II (September 1, 2014). Review of Austrian Economics 29(1) 2016: 53-66. Available at SSRN: https://ssrn.com/abstract=2364579 or http://dx.doi.org/10.2139/ssrn.2364579

Alexander William Salter (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

HOME PAGE: http://awsalter.com

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

Solomon M. Stein

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

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