Abstract
For money to be essential, environments have been considered in which there is imperfect monitoring of past actions and in which it is difficult to coordinate among economic agents. This paper provides an environment in which there is no monitoring of past actions while coordination is difficult. In this environment, we show that the first best allocation is achieved without money, and hence, money is not essential. The implication is that, for money to be essential, no monitoring is not enough but coordination must also be free.
Funding source: NSF
Award Identifier / Grant number: SES-1626783
Funding source: JSPS
Award Identifier / Grant number: 19K13648
Funding statement: Awaya acknowledges financial support from NSF http://dx.doi.org/10.13039/100000001, Grant (SES-1626783). Fukai acknowledges financial support from JSPS KAKENHI (Grant Number 19K13648).
Acknowledgement
We would like to thank Neil Wallace for his guidance and continuous support and Luis de Araujo for his helpful suggestions and encouragement.
References
Aliprantis, C. D., G. Camera, and D. Puzzello. 2007a. “Contagion Equilibria in a Monetary Model.” Econometrica 75: 277–282.10.1111/j.1468-0262.2007.00739.xSearch in Google Scholar
Aliprantis, C. D., G. Camera, and D. Puzzello. 2007b. “Anonymous Markets and Monetary Trading.” Journal of Monetary Economics 54: 1905–1928.10.1016/j.jmoneco.2006.11.002Search in Google Scholar
Araujo, L. 2004. “Social Norms and Money.” Journal of Monetary Economics 51: 241–256.10.1016/j.jmoneco.2003.01.005Search in Google Scholar
Araujo, L., and B. Guimaraes. 2014. “Coordination in the Use of Money.” Journal of Monetary Economics 64: 38–46.10.1016/j.jmoneco.2014.01.009Search in Google Scholar
Araujo, L., and B. Camargo. 2015. “Limited Monitoring and the Essentiality of Money.” Journal of Mathematical Economics 58: 32–37.10.1016/j.jmateco.2015.03.004Search in Google Scholar
Araujo, L., and B. Guimaraes. 2017. “A Coordination Approach to the Essentiality of Money.” Review of Economic Dynamics 24: 14–24.10.1016/j.red.2016.12.002Search in Google Scholar
Araujo, L., B. Camargo, R. Minetti, and D. Puzzello. 2012. “The Essentiality of Money in Environments with Centralized Trade.” Journal of Monetary Economics 59: 612–621.10.1016/j.jmoneco.2012.10.007Search in Google Scholar
Bewley, T. 1983. “A Difficulty with the Optimum Quantity of Money.” Econometrica 51: 1485–1504.10.2307/1912286Search in Google Scholar
Camera, C., and M. Casari. 2014. “The Coordination Value of Monetary Exchange: Experimental Evidence.” American Economic Journal: Microeconomics 6: 290–314.10.1257/mic.6.1.290Search in Google Scholar
Duffy, J., and D. Puzzello. 2014. “Gift Exchange Versus Monetary Exchange: Theory and Evidence.” American Economic Review 104: 1735–1776.10.1257/aer.104.6.1735Search in Google Scholar
Kandori, M. 1992. “Social Norms and Community Enforcement.” Review of Economic Studies 59: 63–80.10.2307/2297925Search in Google Scholar
Kocherlakota, N. 1998a. “Implications of Efficient Risk Sharing without Commitment.” Review of Economic Studies 63: 595–609.10.2307/2297795Search in Google Scholar
Kocherlakota, N. 1998b. “Money is Memory.” Journal of Economic Theory 81: 232–251.10.1006/jeth.1997.2357Search in Google Scholar
Kocherlakota, N. 2002. “The Two-Money Theorem.” International Economic Review 43: 333–346.10.1111/1468-2354.t01-1-00017Search in Google Scholar
Lagos, R., and R. Wright. 2005. “A Unified Framework for Monetary Theory and Policy Analysis.” Journal of Political Economy 113: 463–484.10.1086/429804Search in Google Scholar
Lagos, R., and R. Wright. 2008. “When is Money Essential? A Comment on Aliprantis, Camera and Puzzello.” Working paper.Search in Google Scholar
Ljungqvist, L., and T. J. Sargent. 2018. Recursive Macroeconomic Theory. Cambridge, MA: MIT Press.Search in Google Scholar
Mailath, G., and L. Samuelson. 2006. Repeated Games and Reputations. New York, NY: Oxford University Press.10.1093/acprof:oso/9780195300796.001.0001Search in Google Scholar
Matsui, A., and T. Shimizu. 2005. “A Theory of Money and Marketplaces.” International Economic Review 46: 35–59.10.1111/j.0020-6598.2005.00309.xSearch in Google Scholar
Ostroy, J. 1973. “The Informational Efficiency of Monetary Exchange.” American Economic Review 47: 597–610.10.1016/B978-0-12-663970-4.50013-XSearch in Google Scholar
Sugaya, T., and A. Wolitzky. 2017. “Bounding Equilibrium Payoffs in Repeated Games with Private Monitoring.” Theoretical Economics 12: 691–729.10.3982/TE2270Search in Google Scholar
Takahashi, S. 2010. “Community Enforcement when Players Observe Partner’s Past Play.” Journal of Economic Theory 145: 42–62.10.1016/j.jet.2009.06.003Search in Google Scholar
Townsend, R. 1989. “Currency and Credit in a Private Information Economy.” Journal of Political Economy 97: 1323–1344.10.1086/261656Search in Google Scholar
Wallace, N. 2011. The Mechanism-Design Approach to Monetary Theory. In Handbook of Monetary Economics. 2nd ed, edited by B. Friedman and M. Woodford, 3–23. Amsterdam: Elsevier.10.1016/B978-0-444-53238-1.00001-6Search in Google Scholar
Wallace, N. 2014. “Optimal Money-Creation in ‘Pure-Currency’ Economies: A Conjecture.” The Quarterly Journal of Economics 129: 259–274.10.1093/qje/qjt030Search in Google Scholar
Wiseman, T. 2015. “A Note on the Essentiality of Money Under Limited Memory.” Review of Economic Dynamics 18: 881–893.10.1016/j.red.2015.09.001Search in Google Scholar
©2020 Walter de Gruyter GmbH, Berlin/Boston
