Using social norms to promote money acceptability

Vincent Bignon

Description

Niveau: Supérieur
Using social norms to promote money acceptability Vincent Bignon University of Paris 10 at Nanterre and Ecole Polytechnique, France Preliminary version Address for correspondence: Université de Paris 10-Nanterre, FORUM/MINI Bât. K, 200, Avenue de la République, 92000 Nanterre cedex, France 00 33 1 40 97 78 86 (Fax) may 2002 Abstract Although the study of the origin of money is usually restricted to the familiar opposition between a market-based and a state-based theories, the de?nition of money acceptability o?ers no compelling reason to restrict our attention to those two factors. Hence, this paper uses the search theoretic framework to highlight the role of social norms in enhancing the acceptability of a money linked to a social code. We assume that the population is divided into two subsets : one subset is skeptical regarding the social code and hence behaves as in the basic search model; the other part believes in that code, so that their behavior results from a trade-o? between both social and economic motives. We then address the impact of such social motives (as opposed to economic motives) on the coordination of agents on the monetary equilibrium and show that if the population of believers - or the disutility of violating the code - is large enough, the barter equilibrium disappears. Keywords : ?at money, search, social norms JEL Classi?cation : E41, Z13 1

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Sujets

• Bignon
• École polytechnique
• Université de Paris
• Schindler
• Social Code

Informations

• Publié par: chaeh
• Nombre de lectures: 11
• Langue: English

Extrait

Using social norms to

promote money

Vincent Bignon

acceptability

University of Paris 10 at Nanterre and Ecole Polytechnique, France

Preliminary version

Address for correspondence:

Université de Paris 10-Nanterre, FORUM/MINI

Bât. K, 200, Avenue de la République,

92000 Nanterre cedex, France

[e-mail]

00 33 1 40 97 78 86 (Fax)

may 2002

Abstract

Although the study of the origin of money is usually restricted to the familiar opposition between

a market-based and a state-based theories, the deÞnition of money acceptability offers no compelling

reason to restrict our attention to those two factors. Hence, this paper uses the search theoretic

framework to highlight the role of social norms in enhancing the acceptability of a money linked to

a social code. We assume that the population is divided into two subsets : one subset is skeptical

regarding the social code and hence behaves as in the basic search model; the other part believes

in that code, so that their behavior results from a trade-offbetween both social and economic

motives. We then address the impact of such social motives (as opposed to economic motives) on

the coordination of agents on the monetary equilibrium and show that if the population of believers

- or the disutility of violating the code - is large enough, the barter

Keywords :Þat money, search, social norms

JEL ClassiÞcation Z13: E41,

1

equilibrium disappears.

1 Introduction

The opposition between a market-based and a state-based theories of the origin of money is familiar to monetary theorists 1 . Nevertheless, the deÞnition of money acceptability offers no compelling reason to

restrict our attention to those two factors. Previous research in the search theoretic approach to money

shows that money is valued and accepted only if people expect that they can resell it for consumption

good. Hence, setting up a a theory of the origin of monetary exchanges needs only to take out the

mechanism that sustains this expectation. The methodology of such search model requires to specify not only the exchange process 2 , but also the context in which people form expectations regarding the circulation of money. This provides some scope for new explanations of the circulation of money,

besides market or governmental considerations. This paper presents a model that highlights the role

of social motives in building conÞdence in the future acceptability of money.

ThisÞeld of research provides a better understanding of the historical fact that money existed in

almost all societies. It also makes it possible to connect search models, which are purely theoretical, to

the wide range of historical or anthropological cases. The basic monetary search model (Kiyotaki &

Wright 1993) predicts that the barter equilibrium exists any time, because of a coordination failure. If

this mechanism turns out to be true, one might expect toÞnd many cases of barter exchange in history.

However, anthropologists and historians found very few cases of barter system (Klein 1976). Adding

a mechanism that helps agents to coordinate their expectations about the use of money allows to explain the above-mentioned historical regularity. A such mechanism can be found in a governmental inßuence, as shown by Aiyagary & Wallace (1997) and Li & Wright (1998). But this gives a partial

explanation, since we can exhibit cases in which money circulated without any state intervention. This

is why we focus on a new set of mechanisms, related to the way social inßuences can enforce money

acceptability. Hence, our model makes a further step towards the study of the non-economic motives

enforcing monetary equilibrium by considering the social context.

Many historical or anthopological study cases indicate that money often possesses at least one

symbolic element. For instance, the sentence In God we trust is written on the Dollar bill. To

explain more precisely how social norms can inßacceptability, lets take the exemple ofuence money

the Wodani society in New Guinea (Breton 2001). In this society, none state intervenes in agents life. Money consists in sea-shells that are used neither for production nor for consumption 3 . Moreover they 1 generally, people refer to Menger (1892) for theÞrst view. For the second view, see Knapp (1924)and Lerner (1947). 2 As argued e.g. by Rupertet alii(2001) 3 More precisely, money could be used for two purposes:Þrst for basic exchanges of goods and second for symbolic

2