Working Paper
A note on purifying mixed strategy equilibria in the search-theoretic model of fiat money
Abstract: The simple search-theoretic model of fiat money has three symmetric Nash equilibria: all agents accept money with probability 1; all agents accept money with probability 0; and all agents accept money with probability y between 0 and 1. Here the author constructs a nonsymmetric pure strategy equilibrium, payoff-equivalent to the symmetric mixed strategy equilibrium, where a fraction N between 0 and 1 of agents always accepts money and 1-N never accepts money. Counter to what has been conjectured previously, the author finds N>y. The author also studies evolutionary dynamics and shows that the economy converges to monetary exchange if and only if the initial proportion of agents accepting money exceeds N.
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 1998
Number: 98-8