The Political Economy of Bitcoin

30 Pages Posted: 29 Nov 2014 Last revised: 22 May 2018

See all articles by Joshua R. Hendrickson

Joshua R. Hendrickson

University of Mississippi

Thomas L. Hogan

The University of Austin; American Institute for Economic Research

William J. Luther

Florida Atlantic University; American Institute for Economic Research

Date Written: July 28, 2015

Abstract

The recent proliferation of bitcoin has been a boon for users but might pose problems for governments. Indeed, some governments have already taken steps to ban or discourage the use of bitcoin. In a model with endogenous matching and random consumption preferences, we find multiple monetary equilibria including one in which bitcoin coexists with regular currency. We then identify the conditions under which government transactions policy might deter the use of bitcoin. We show that such a policy becomes more difficult if some users strictly prefer bitcoin because they can avoid other users holding currency in the matching process.

Keywords: Money matching, Random matching, Endogenous matching, Cryptocurrency, Bitcoin

JEL Classification: C78, E41, E42, E50

Suggested Citation

Hendrickson, Joshua R. and Hogan, Thomas L. and Luther, William J., The Political Economy of Bitcoin (July 28, 2015). Available at SSRN: https://ssrn.com/abstract=2531518 or http://dx.doi.org/10.2139/ssrn.2531518

Joshua R. Hendrickson (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

Thomas L. Hogan

The University of Austin ( email )

522 Congress Ave
Ste 300
Austin, TX 78701
United States

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

William J. Luther

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

HOME PAGE: http://www.wluther.com

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

HOME PAGE: http://www.aier.org/staff/william-j-luther

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