American Economic Review: Vol. 104 No. 6 (June 2014)

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Gift Exchange versus Monetary Exchange: Theory and Evidence

Article 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

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.

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Authors

Duffy, John (U CA, Irvine)
Puzzello, Daniela (IN U)

JEL Classifications

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


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