Monetary Exchange as a Social Convention: Emergence and Stability of an Intermediating Commodity I Am Grateful To

This paper investigates the stability of monetary exchange equilibria and the conditions necessary for an equilibrium of this type to emerge endoge-nously. Previous research on money as a medium of exchange has depended on either initial conditions or steady state conditions to pinpoint equilibria. These approaches are not satisfactory for addressing the issue of emergence, either because the determining element is exogenous, or because there are multiple equilibria without criteria for selecting between them. We construct an N-person non-cooperative anonymous game from an economy with many commodities and bilateral exchange. The environment is restricted so that in addition to direct barter opportunities there is a commodity { a token commodity with no value in consumption { which can be used for intermediate exchanges. We make use of recent advances in evolutionary learning in games pioneered in Young (1993) and Kandori, Mailath, and Rob (1993) to characterize conditions under which monetary trade is typically observed in the long run regardless of initial conditions and discuss how informational assumptions aaect transition time.