Money and the Scale of Cooperation
Quaderni - Working Paper DSE N° 1045
45 Pages Posted: 23 Dec 2015
Date Written: December 22, 2015
This study reveals the existence of a causal link between the availability of money and an expanded scale of interaction. We constructed an experiment where participants chose the group size, either a low-value partnership or a high-value group of strangers, and then faced an intertemporal cooperative task. Theoretically, a monetary system was inessential to achieve cooperation. Empirically, without a working monetary system, participants were reluctant to expand the scale of interaction; and when they did, they ended up destroying surplus compared to partnerships, because cooperation collapsed in large groups. This economic failure was reversed only when participants managed to concurrently develop a stable monetary system.
Keywords: Endogenous institutions, experiments, repeated games, strategic uncertainty
JEL Classification: C90, C70, D80
Suggested Citation: Suggested Citation