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  3. American Economic Review
  4. June 2014
  5. Gift Exchange versus Monetary Exchange: Theory and Evidence

Gift Exchange versus Monetary Exchange: Theory and Evidence

  • John Duffy
  • Daniela Puzzello
American Economic Review
vol. 104, no. 6, June 2014
(pp. 1735-76)
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Abstract

We study the Lagos and Wright (2005) model of monetary exchange in the laboratory. With a finite population of sufficiently patient agents, this model has a unique monetary equilibrium and a continuum of non-monetary gift exchange equilibria, some of which Pareto dominate the monetary equilibrium. We find that subjects avoid the gift-exchange equilibria in favor of the monetary equilibrium. We also study versions of the model without money where all equilibria involve non-monetary gift-exchange. We find that welfare is higher in the model with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device.

Citation

Duffy, John, and Daniela Puzzello. 2014. "Gift Exchange versus Monetary Exchange: Theory and Evidence." American Economic Review, 104 (6): 1735-76. DOI: 10.1257/aer.104.6.1735

Additional Materials

JEL Classification

  • C92 Design of Experiments: Laboratory, Group Behavior
  • D12 Consumer Economics: Empirical Analysis
  • E40 Money and Interest Rates: General
  • Z13 Economic Sociology; Economic Anthropology; Social and Economic Stratification