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THE SUPERIORITY OF MONETARY OVER BARTER EXCHANGE: EXPERIMENTAL RESULTS AND POLICY IMPLICATIONS
Author(s) -
Rötheli Tobias F.
Publication year - 2011
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2011.00554.x
Subject(s) - barter , economics , unit of account , order (exchange) , monetary economics , monetary policy , government (linguistics) , unit (ring theory) , microeconomics , macroeconomics , finance , psychology , currency , linguistics , philosophy , mathematics education
William Stanley Jevons suggested that monetary exchange is socially superior to barter exchange because agents' optimization is simplified by the use of money. We experimentally study how subjects perform under monetary and barter exchange and find that a majority of subjects achieve a higher utility level in the monetized economy. The individual choices are statistically analyzed in order to track important elements of suboptimal decision making like the tendency to under‐ or over‐react to price signals. Our laboratory findings indicate that, at a minimum, government may have a role in promoting a common unit of account.