Social Norms and Money

21 Pages Posted: 21 Jul 2003

See all articles by Luis F. Araujo

Luis F. Araujo

Michigan State University - Department of Economics

Date Written: January 2003

Abstract

In an economy where there is no double coincidence of wants and without public record-keeping of past transactions, money is usually seen as the only mechanism that can support exchange. In this paper we show that, as long as the population is finite and agents are sufficiently patient, a social norm establishing gift-exchange can substitute for money. However, for a given discount factor, population growth eventually leads to the breakdown of the social norm. Additionally, increases in the degree of specialization in the economy can also undermine the social norm. By contrast, monetary equilibrium exists independent of the population size. We conclude that money is essential as a medium of exchange when the population is large.

Keywords: norms, memory, money, specialization

JEL Classification: E00, D83

Suggested Citation

Araujo, Luis Fernando, Social Norms and Money (January 2003). Available at SSRN: https://ssrn.com/abstract=393260 or http://dx.doi.org/10.2139/ssrn.393260

Luis Fernando Araujo (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7583 (Phone)
517-432-1068 (Fax)

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