Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction
AbstractWe show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an "intertemporal cooperation game" either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.
CitationBigoni, Maria, Gabriele Camera, and Marco Casari. 2019. "Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction." American Economic Journal: Microeconomics, 11 (2): 195-227. DOI: 10.1257/mic.20170280
- C71 Cooperative Games
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems