The Political Economy of Bitcoin

15 Pages Posted: 26 Feb 2016  

Joshua R. Hendrickson

University of Mississippi; American Institute for Economic Research

Thomas L. Hogan

Rice University - Baker Institute for Public Policy

William J. Luther

Florida Atlantic University; American Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 2016

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 official 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 the official currency in the matching process.

JEL Classification: C78, E41, E42, E50

Suggested Citation

Hendrickson, Joshua R. and Hogan, Thomas L. and Luther, William J., The Political Economy of Bitcoin (April 2016). Economic Inquiry, Vol. 54, Issue 2, pp. 925-939, 2016. Available at SSRN: https://ssrn.com/abstract=2738278 or http://dx.doi.org/10.1111/ecin.12291

Joshua R. Hendrickson (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

Thomas L. Hogan

Rice University - Baker Institute for Public Policy ( email )

6100 Main Street, MS-40
Houston, TX 77005
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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